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Mel Kenny: Fund managers need to tell it to us straight

Enough with the cautious optimism, just tell us the truth

The other day I found myself paying attention to one of those desperate fund managers, looking forlornly at his dwindling bonus as the prospect of redemptions weighed heavily on his fund. This was his golden chance to prove his worth.

“I am cautiously optimistic about future growth,” he says.

Here we go again, the same patter that normally results in me taking a long snooze.

If stocks go down the pan or rise through the roof, all those cautiously optimistic fund managers will take credit for being right. But you have told me nothing Mr Fund Manager. In fact, the next time I hear the phrase cautiously optimistic

I am going to scream.

The problem with the phrase is that it implies the fund manager knows what is going on when really he does not and never did, it just looked like he did when everything was going up. It is just too dangerous to say, “I do not know.” But that is the truth, the fund manager does not. The search for value is a search for illusory knowledge. The future is unknowable and value is only really known after the event.

We are not easily persuaded any more and are not the soft target we once were. You are the one looking like a salesman now and must catch up or you will be out on your ear. We know you need to sell funds no matter what the outlook.

The danger is that you are increasingly relying on execution-only platforms for fund sales – platforms that also only survive through fund sales.

The problem here is that you now have access to the general public with this expert drivel and more often than not, it all ends in tears. All sense of risk is lost when we buy into the illusory high.

The phrase cautiously optimistic itself is a nonsense, caution defeats the purpose of optimism. You are either optimistic or you are not.

Cautiously optimistic is a don’t know phrase packed with endorphins, an allpurpose, meaningless qualifier to keep the so-called expert from looking stupid.

But can you imagine us saying the same to our clients, or explaining it to the FSA when the outcome is not quite what we had hoped?

Tell it to me straight. There are a few of you who do and I respect you for that but we need more of you.

Mel Kenny is a chartered financial planner at Radcliffe & Newlands

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. sHEETAL sHEETAL 13th June 2012 at 1:33 pm

    The verbal is always hedging its bets while the performance is always inflated until we get proper infomration about performance net of all charges this sirt of stuff will continue much to the other clients’ disappointment

  2. Good point, well made Mel.
    We are constantly bombarded by fund groups trying to sell us their fund. Only recently I have received 4 different e mails promoting a student accommodation fund. Granted it has excellent 2 year performance (maybe that is why I am getting these messages now) but it was always going to be my job to find out the reasons against the fund and theirs to tell me the reasons for it. Our roles are no different to what they have always been.
    Clients often read exciting” buy now whilst stocks last/get in early” type stories in the media then ask me what I think. I am not a sales person so I don’t use that as a cue to take an order but not all advisers are the same. So instead of taking the path of least resistance I plough on when I could risk being seen by the client as a “killjoy” when I give my reasons not to buy the fund they are so keen on.
    Or that I am defending myself for not having alerted them to the fantastic fund that they have discovered for themselves.
    I am risking losing a dissatisfied client if they believe the press more than they believe me. But then I would rather not have to deal with the unsatisfactory outcome if I truly believe the fund is not right for them. Only time will tell if I am to be embarrassed.
    This is my job as an IFA – to question and investigate and only to recommend what is suitable. The role of the fund group is as the article says to sell their funds and to make a profit.
    With the likely expansion of execution only services I do wonder how many investors will buy a series of funds that are unsuitable just because of what they read. How clear will the execution only provider make it that there is no advice and therefore no comeback?

  3. Fund managers and the term cautiously optimistic should not be mentioned in the same sentence. I would love to know what is he knows so he can say; he’s cautiously optimistic because everything I read, listen to and see with my own eyes tells me otherwise. There has to be a reason why guranteed investments and bonds are the flavour of the month and it can’t be my clients are cautiously optimistic.

  4. I think the point is no-one can really foresee the future; fund managers who claim they can are the Russell Grants of the financial services industry-some may find them amusing but you need your head examined if you act solely on their advice.

    As for irritating words/phrases – how about “robust”? I am inclined to switch off whenever I see/hear another idiot jumping on the trendy language bandwagon

  5. Nigel Tinsdale 13th June 2012 at 3:20 pm

    You will never hear a fund manager say I think equities are complete pants right now so get out, unless that is they are selling a corporate bond fund that is. Cautiously optimistic I would say is the closest fund manager speak gets to saying that equities are pants right now. But why listen to fund managers in the first place, you will never get the truth, they just have too big a vested interest.

  6. There’s another point that you all seem to be missing. Why would the fund manager “tell you like it is” if he doesn’t think you will understand? You need to be on the same (or higher) level as the FM otherwise you will not be able to make the correct judgement. It’s the same short-ism of “equites are pants right now” that stop IFAs making true long term decisions and end up chasing the tail of the market(s).

    Remember that what you hear tends to be what you deserve.

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