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Lee Robertson: The futile hunt for fund board independent directors

New rules from the FCA require fund groups to appoint at least two independent directors to their boards in an attempt to enhance transparency in governance and ensure investors’ interests are known and supported.

This is a huge step forward for fund groups. More and more often they have to deal with unit holders at arm’s length, with clients investing via advisers and platforms. This makes it difficult to get to know them at all.

Yet, at the same time, such groups are held increasingly accountable for outcomes by the regulator.

The independent directors will supply meaningful insight and challenge to fund group boards to ensure investors’ interests are looked after.

FCA forces fund managers to prove value

It is estimated there will need to be around 500 of these individuals, who must be able to demonstrate a lack of conflict of interest, an intellectual robustness and a detailed knowledge of investor and fund group dynamics to fulfil their roles.

I have heard this number disputed in some quarters but it sounds about right when you consider the sheer amount of asset managers and funds open to investors, either directly, through platforms or via an adviser.

While fund groups will no doubt know lots of talent from which these people could be drawn, it may be much more difficult than it first looks.

This is a very large number of industry-savvy individuals to find quickly. They will have to carry board-level responsibilities and demonstrate a willingness to speak up for the investor even if it might, at times, be unpopular or commercially unattractive, and often among other strongly opinionated and knowledgeable executive directors.

Existing staff will struggle with the necessary lack of conflict of interest, as will many highly respected advisers and fund selectors. But it is just these types that will have the breadth of experience and detailed knowledge needed for the role.

FCA: IFAs can sit on fund group boards as independent directors

Professional non-executive directors, public servants and compliance consultants may be able to contribute but it is very difficult to quickly and effectively amass the end investor knowledge required, let alone how it may intersect and impact upon the decisions groups make daily as they conceptualise, build and market funds.

The regulator has suggested that independent directors seen to amass too many roles could be frowned upon and lead to fund groups being criticised for going through the motions. This makes the 500 figure even more plausible.

Like many elements of regulation aimed at protecting the public, we should applaud the concept. But I do not envy those who will have to implement it. Just how many un-conflicted, highly experienced financial services sector individuals are there that would pass the scrutiny of the regulator, advice community and investing public?

I am not sure where they will come from but I do hope fund groups are successful in finding them. This is a welcome move in the right direction and could close the knowledge gap between investors, their advisers and those who build the funds.

Lee Robertson is chief executive of Investment Quorum

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Duncan Gafney 4th June 2018 at 1:39 pm

    There are many, many exceptionally competent and talented individuals within this industry more than willing to express a contrary viewpoint.

    However because of the nature of society and human relationships, those who do tend to be somewhat “shunned” by many others, because they refuse to conform to the “group think” mentality. Because they put fact, logic, reason above “emotion”.

    We all know them, they are those who tend to work in highly “technical roles”, whose “interpersonal” skills are frequently giggled about, but who the entire industry would be lost without, because they understand the nitty gritty nuts and bolts of Finance in a way few “normal people” understand. They are the ones who can explain hugely complex subjects in a way normal people can understand.

    However most of these people would not dream of putting themselves forward for such roles, simply because it would involve them having to use their “people skills”, which they likely freely acknowledge aren’t good.

    However ironically, in this specific case, that lack of “people skills”, that “thick skin” makes them ideally suited to the role of needing to express contrary viewpoints and speak up for the little people.

    The fact that these people also tend to be strongly driven by a desire to have things “right”, to be “fair” almost goes to prove that point.

    How many of us, know this exact kind of person and know, they would likely excel at this role?

  2. Clive Bridgeman 4th June 2018 at 1:46 pm

    As a retired IFA, and a specialist in High Net Worth Clients, Business and Crypto Currencies, I for one could be very interested in being a NED for a Fund Management Group.

  3. IFA’s are probably amongst the best equipped people out there to sit on these boards.

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