Starting at Save & Prosper (now JP Morgan) in 1969, moving to Jessel Britannia (Invesco Perpetual) in the early 1970s, starting up his own firm Chieftan in the late 1970s (which went on to become Aberdeen) and heading up Henderson’s unit trust business in the 1990s, Eats has seem some turbulent times in the creation of the UK funds industry.
At Save & Prosper Eats started as a graduate trainee in the ad department and within 18 months became brand manager of the group’s professional adviser branch – a newish area for fund management back then.
What is interesting is the evidence of the swings and repetition of history. When he made the move to Jessel Britannia, the group’s most popular funds were property, commodity and resource funds. It was there that Eats noted groups were starting to look to broaden their distribution to be less dependent on direct. With some of the first IFA firms being set up at that time, insurance products dominated advice.
In the early 1980s, Eats ended up at GT as global marketing director where he worked with fund managers Nick Train and Robert Stirling. Eats was at GT (bought by Invesco in the 1990s) during the 1987 crash. Immediately after Black Monday, Eats remembers being in a board meeting as drastic cuts were decided to help in what was expected to be a difficult time ahead at GT. “We decided to go down to the wine bar and have some champagne as we thought it’d be the last we would have for some time,” he said.
The recession that foll- owed did see a slowdown in business growth but Eats notes GT was lucky in its overseas exposures, particularly in the US. In 1989 when the Berlin Wall fell, US investors suddenly wanted European funds and GT had one of the best. Eats found himself spending a lot of time with US brokers, handing them souvenir pieces of the Berlin Wall and the firm took in $4bn in just eight weeks.
IFAs became increasingly important during the 1980s and the next big incentives towards funds and equity investing came about with the introduction of Peps and the start of trail commission. Invesco was the first to introduce trail commission but if it thought it would gain market share on the back of it, this quickly proved wrong as other groups followed its example.
During his stint at Hendersons, working with the likes of Paul Manducca, Robin Minter-Kemp, Phil Wagstaff, Richard Pursglove and Guy Beech, Eats spent some time as a fund manager – on one of the most infamous funds in UK retail history, Henderson Prime Residential Property.
Moving to Threadneedle in the mid-1990s, Eats was involved in a few more industry firsts, including the introduction of the UK’s first Oeic range.
Although GAM launched the first Oeic fund, accord- ing to Eats Threadneedle was the first to launch a range with multiple share classes and currencies. More recently he has been a communications and brand consultant for advisory supermarket, Cofunds.
What do you think made funds more attractive?
In the early 1970s the Government changed tax regulations and made funds more attractive in comparison with insurance products. The main commission on funds at that time was 1.25 per cent initial with no trail. At Jessel Britannia we thought if IFAs were going to change their business model and look more at funds we should help them out. So we came up with a 1.75 per cent marketing allowance, which pushed initial commission to today’s standard 3 per cent.
What has pushed the popularity of funds forward over the years?
In the long run, properly run portfolios of bonds and equities will provide better returns than cash. That message caught on in the 1960s when inflation really started to increase.
What has been the most important development in the distribution of funds?
Fiscal privilege has been key. The retail financial services market was transformed by the simplification of tax relief on life insurance premiums in the 1970s. It was available before but people had to claim it back in their tax returns. In the 1970s the Conservatives changed it so it could be paid directly to the life company. The revenue bought the idea because it made admin less complicated, but it meant it was easier to market products because it looked like free money from the Government. This helped power the likes of Abbey Life and Allied Dunbar, with big sales forces and distribution arms. Many of the more successful sales people went on to start IFA firms.
Peps and Isas have boosted the market for investment funds and the new Sipp regime is changing the pensions market.
The problem with fiscal privilege today is that various governments through the years have tinkered with it to the point that we now have a massive array of investment options and tax considerations. In the long run they have probably made life more difficult and confusing for investors because of the plethora of choices out there. As a consequence, they have to pay more for advice. Tax privileges tend to be eaten up by high distribution costs – certainly with unit-linked life insurance. My advice to the Treasury now would be to radically simplify the whole regime.
With what has been happening in the markets, a lot of criticism has been directed at financial services for over-complicating and engineering products. Is there merit in that assertion?
I have not seen a single case of a mutual fund going bust in my career. The markets are certainly more complicated but I would not necessarily say that is the case for mutual funds. For example, absolute return funds using the widened Ucits rules are a sensible alternative. But the construction of products outside of funds could be considered complex and opaque – we have various structured products, private equity, venture capital and hedge funds.
However, the mutual funds industry has been guilty of over-hyping fund types, particularly at the top of a cycle – look at technology funds. While it is fair to say not everyone did it, many companies can not resist the urge to push the envelope.
We’ve gone through many scandals – pensions mis-selling, endowments, split-capital trusts and precipice bonds. What has caused the most damage to investor perception of the industry?
None of those were funds – the structure of funds does not lend itself to such issues. The problem is that everyone thinks we are all in this together so it damages the trust in financial companies as a whole. Market crashes swing sentiment and it does not help when companies hype a product, which then falls – like tech.