Over the last few years, the financial services industry has faced many challenges, from the retail distribution review, Basel III and Solvency II, to the credit crunch, European banking crisis, Mifid and TCF.
It is easy to understand why the industry has been busy concentrating on surviving but I am left with the impression that we have forgotten why we are in business. We have lost some of our focus on fulfilling very basic roles and responsibilities to our clients.
Those in banking, insurance, pensions, protection, fund management and wealth management have different priorities but we have to remind ourselves that we are in business to help our clients get what they need. This realisation led me to spend some time reminding myself and my colleagues in the fund management industry what these needs are.
From a fund management perspective and a retail focus, we can sum up our core focus as providing a range of medium to long-term savings products that can help advisers and their clients achieve the client’s key objectives.
In this simple statement, there are four key phrases to focus on.
Medium to long term
For some time, the press, regulators, the advisory and discretionary markets and ultimately end-investors have become overly concerned by short-term perspectives in assessing all aspects of our business, for example, the advice process, investment performance – absolute and relative – and charging structures.
This short-termism is harmful in a number of ways. It leads to high turnover of assets, with the associated transaction costs to take into account. It leads to a false expectation of deliverable investment returns over time.
A failure to manage expectations creates a culture of underachievement, complaints and regulatory interference. This all makes expectation management and hence a realistic approach to investment returns inherently more difficult
Savings and investment products
Over the past 20 years, our industry has moved awa from a traditional balanced approach between regular and single-contribution structures.
For people with accumulated wealth, single premium investments are both important and viable but more products should be sold that are designed for regular contributions.
Instilling the regular savings habit has a number of benefits, including giving investors the benefit of pound-cost averaging for investments into riskier assets, helping people live within their means and budget for savings in their regular expenditure patterns and helping clients take greater personal responsibility for their financial futures.
The success of a particular investment is best judged by its ability to meet the objectives outlined at outset.
Too much of current evaluation of products is by quartile ranking, profile/ personality of the fund manager or just the luck of the draw on being in a particular asset class at a moment in time.
The most important question, did the product deliver what we were led to expect, gets forgotten. If a product is designed to deliver index plus 1 per cent returns and achieves this, surely it is a good product even if it turns out to be ranked second or third quartile in its sector.
A range of products
It is essential that our industry produces a range of products that is clearly differentiated by:
- Risk exposures
- Time scales
- Being a building block for a portfolio or by being a managed solution
- The levels of returns sought – market returns or a level of outperformance
- Differing levels of capacity
- The outcomes expected to be delivered
Too often, we have had product proliferation for the sake of a marketing story, rather than providing a clearly defined basis of differentiation. This makes life complicated for advisers and clients.
We live in a complicated world and never has it been more important to have savings and investment products that can help clients meet their needs.
Robert Noach is head of global financial institutions at Schroders