Legal & General Investments managing director Simon Ellis says 2012 is shaping up to be the year of regulation, with half the company’s budget earmarked for this area.
In addition to the RDR, 2012 will see a convergence of several other regulatory issues that Ellis says will act as a drag on the investment management business.
“Fatca worries me a lot and we also have Mifid 2 and Ucis 5. Half our budget is going to be spent on regulation next year and you cannot launch new products if you have to write a whole set of KIIDs documents.
“If you had asked me six months ago about my plans, I would have been more ambitious but we have to be realistic. 2012 is not a year where being bold is a good option. I am not saying we are going to batten down the hatches but we are going to be more selective until the uncertainty eases.”
Ellis joined L&G two years ago. “I knew the role would be challenging. I spoke to a few people and they all said L&G was not a sleeping giant exactly, more of a sleeping beauty. It had beautiful fund managers and products inside it but had not been rewarded with market inflows. It needed to be woken up.”
Ellis believes that L&G is starting to wake up. The past two years have seen its market position shift from eighth to sixth- biggest fund manager but that is not the change Ellis values the most. “What is more valuable is that key industry individuals are taking us seriously.”
There is still some way to go before L&G becomes a major player and Ellis cites three business areas that need work.
“The first is product. When I started, we had a lot of obvious gaps, such as UK equity income and global emerging markets, and we filled some of those but there is still more to do in areas like multi-asset.”
The second area is branding. L&G has spent a considerable amount on its digital presence, a decision Ellis arrived at through trial and error. “We tried regional dinners and overseas conferences and they ran their course, so then we tried videos but people only watched the first two minutes. The internet is key and our website has improved but some people want to see the whites of the eyes of the fund managers. We have to manage that too.”
The final area is service, where Ellis has brought about a return to physical sales. “Call centres are usually a training ground for novices. We decided to switch that round so our experts were at the front and we have had fantastic feedback.”
Ellis spent the first seven years of his career in protection before deciding that investment was the path for him.
Having joined Phoenix Assurance straight after university, Ellis stayed for four years before taking a role running LAS Group’s London office but the world of investment had caught his eye. “It became clear to me that the unit trust industry was likely to grow more quickly than insurance.”
When a friend said a job at Henderson Global Investors as regional sales manager was available, Ellis jumped at the chance.
“Henderson was a class outfit. Looking at some of the people who have worked there – Ian Chimes, Phil Wagstaff, Richard Pursglove – it was also a forming ground.”
The 14 years he spent at Henderson, ultimately as head of retail, were a period of “corporate turmoil”, according to Ellis. “We bought Touche Remnant, got bought by AMP, got sold by AMP and folded MPI. It was a very fast-growing time but after 14 years, people were starting to say I had been at Henderson forever and I did not want to be defined by that.”
Ellis’s joined Axa Investment Managers based on what he saw as the next big investment trend. “After the market collapse in 2002, intermediaries wanted to get someone else to run investments for them. I knew third-party multi-manager would take off in the UK, as it had done in the US, so I joined Axa.”
He left Axa soon after the Framlington buyout and joined Fidelity International, continuing his work in the multi-manager sector but after two years Fidelity decided to reduce its non-core activities and multi-manager was one of them.
“There was the potential for Fidelity to be a major player but there is always the conflict in fund houses over what the role of multi-manager is. The notion of it as a lesser discipline has always been an issue.”
Ellis was approached by the Financial Services Skills Council not long after he left Fidelity. “The FSSC had got itself into a bit of a pickle because its Government license had been withheld. It wanted someone to come in who was much closer to the industry, as it had been accused of lacking industry expertise.”
He spent five months speaking to stakeholders. “When I went to see most of them I got a half-hour diatribe on what was wrong with the FSSC. In the end, we found there were five main issues that all the stakeholders flagged up and redesigned the strategy accordingly.”
Ellis learned at the FSSC that he was not ready for full-time consultancy. “You can do great research and it either does not get taken forward or the people who do, fluff it. I was convinced I had a couple of executive roles left in me, which is partly why I joined L&G.
Ellis believes L&G’s reputation could also be boosted by external changes. “The retail distribution review will cause up to 15 per cent of advisers to leave the industry, which means people may carry out their investment decisions online. Although this does not necessarily mean they will make the right decision, we welcome it because it will give us an impetus to improving our client communications.”
He also believes L&G’s combination of high-alpha funds and passive funds will make the firm more attractive to investors under the RDR. “There is an argument for buying high-quality, alpha-generating funds at a higher price and buying beta funds at a sensible price. What does not make sense are the toxic low-alpha, low-fee funds in the middle. Once fee-based remuneration comes in, IFAs will have a hard time justifying them.”
But Ellis realises there are also problems ahead, with the continuing economic turmoil in Europe a major factor. “Comm-ercially, it means revenue is down but the impact on investor confidence is far more destructive. In an environment where the costs of regulation are increasing as well, businesses are going to be tested.”
Born: Stroud, 1959
Lives: West Byfleet, Surrey, with wife and two children
Education: BA (Hons) in history at University of Warwick
Career: 2009-present: managing director, Legal & General Unit Trust Manage-ment; 2009: managing director, Financial Services Skills Council; 2006-09: managing director of multi-manager, Fidelity International; 2004-06: CEO of multi-manager and head of UK retail, Axa Investment Managers; 1990-2004: head of UK retail, Henderson Global Investors; 1985-90: regional sales manager, LAS Group; 1980-85: life inspector, Phoenix Assurance;
Likes: Fast things on two wheels, all things Italian and photography
Dislikes: Duplicity, over-regulation and the Rugby Football Union
Drives: Alfa Romeo 159
Book: Currently, Lords of Finance: 1929, the Great Depression and the Bankers Who Broke The World, by Liaquat Ahamed
Film: The Godfather, Part II
Album: Ay Caramba! by Ska Cubano
Career ambition: Make a success of this job first
Life ambition: To see my children grow into happy adults
If I wasn’t doing this I would be… Living in Umbria