Investment Management Association chairman Douglas Ferrans has called on the financial services industry to deal with the conflicts of interest created by excessive intermediation.
At the IMA’s annual dinner at Mansion House last week , Ferrans warned that some intermediaries in the investment chain have unwittingly placed their own interests ahead of those of their clients.
Ferrans welcomes the Office of Fair Trading’s study into equity underwriting, saying it underscores investors’ own initial views.
Last week, the OFT announced a market study of equity underwriting and services provided by investment banks, after receiving a number of complaints from companies in recent months.
The IMA recently announced an investigation into fees paid on rights issues. It was commissioned by the Institutional Investor Council and will be chaired by Ferrans. Ferrans said the OFT’s probe would complement the IIC inquiry and help ensure the market is working effectively and in the interests of customers.
He said investors’ interest in the governance environment within which decisions are taken to use investment banks would be an important focus of the inquiry.
Ferrans urged the financial services industry to deal with conflicts of interest from excessive intermediation which, he said, “delivers little or questionable benefit or value” to customers and has created a “risky form of capitalism”.
He said: “Sometimes, these intermediaries have unwittingly placed their own interests ahead of those of their clients. And the greater the number of such intermediaries in the chain, the greater the issue becomes for the owners of the capital – the pension funds, insurance companies and mutual funds investors – ordinary savers and investors.”
Ferrans said insurance-owned fund managers had a duty to act responsibly and where necessary inform conflicted parent companies of their fiduciary duty to clients.
He said: “If they don’t like it, it is clear they should divest themselves of their investment management businesses and only then can the conflicts be conquered and the behaviours altered.”