The investor landscape has changed significantly in the last 10 to 20 years. Not that long ago, investors were often the direct recipients of printed copies of annual reports, monthly newsletters and other promotional information representing a significant proportion of marketing budgets.
Nowadays, the investor is much less easily identifiable as a result of the increasing volume of business flowing through intermediaries and fund platforms. This trend is set to continue and research from The Platforum due to be published in February reveals that 24 per cent of people intend to take their next stocks and shares Isa out through a fund supermarket, with this figure rising to 33 per cent where an individual has total savings and investments of more than £100,000.
Are the interests of the investor compromised by the changing client landscape faced by fund firms? If the investor’s needs are being met within the current distribution chain, then there is little for the fund manager to worry about but are these needs being met?
The latest retail distribution review consultation paper on platforms highlights the growing distance between the investor and fund management companies but only in the context of providing them with relevant information on their existing fund holdings.
It is a good thing this is being addressed (although recognising some of the issues and costs it creates) but it is important to consider the other side of the coin.
One of the fundamental rules of marketing and product development is to know and understand your clients. Is this essential requirement now at risk because of the growing distance between fund manager and investor?
Not necessarily. The intermediary, whether it is an IFA, wealth manager or other financial services provider, has a key role in relaying information both ways. Investors rely on inter-mediaries to find the best investment solutions for them and fund managers rely on them to pass on information concerning the needs and risk appetite of their investors.
If the intermediary provides the same information to fund managers as the investors would, the equation remains the same.
As far as fund management companies are concerned, once we get past the short-term noise, the RDR should ultimately be helpful. Its aims are admirable in seeking to improve the quality of advice being given to investors and the transparency of charges being paid.
As individuals take on greater personal responsibility for their long-term savings and retirement provisions, a strong financial advice sector is essential.
If the RDR is successful, investors will understand more clearly the relationship between their intermediary and the company that ultimately invests money on their behalf. Well educated advisers and informed investors can only be good for the long-term health of our industry.
For now, while it may be the case that the fund management company has lost a certain amount of direct contact with its investors, the question as to whether this really matters must remain open.
The distribution system after the RDR is implemented need not be detrimental to the abilities of the fund management company to fulfil investor demands and may even be helpful. But when layers are added into a relationship, some information may be lost or distorted along the way.
In the constantly evolving fund management industry, we must remain vigilant and alert to the potential issues that the increased distancing of our investors may bring. We must stay in close contact with intermediaries, as representatives of their clients. It is our responsibility to support them in their attempts to adequately advise their clients. To be successful, we must always keep this in mind.