Life never fails to amaze me, as I returned from a conference in the USA the UK investment market was rocked by a certain manager’s forthcoming exit.
I have never ascribed to the star manager syndrome but many do and their reaction left me puzzled. In a time where the FCA has made due diligence part of its standard mantra I started to consider what exactly constitutes adequate due diligence on an active fund.
If people see it as a one man show, then we need to assume that they asked about key man covers? After all if a star manager dies or is incapacitated for an extended period how would the fund company cover the unexpected costs? Surely a lack of this cover evidences an absence of prudence?
At least in this instance we have been given notice – not something that is available where someone takes ill or worse still passes away.
However, I do not believe that most favoured funds are run by a soloist but by a team. Again, all of that would be revealed by proper due diligence.
Having used the prefix “proper” I think this underlines the crux of the issue, so for a moment let me put things in context. Just as we had when Treating Customers Fairly was launched, the repetition of the words “due” and “diligence” has been done without any indication as to what good looks like.
I recently mentioned attending an FCA course where the regulator explained it has taken the view that regulation where rules are written in management consultancy is ineffective and it is much better to lead by example and clearly set parameters. In the case of due diligence, this guidance has been absent so far and the FCA needs to tell us what good looks like.
As regulation evolves this will mean that the role of compliance officer can no longer be allocated to “billy no mates” and will be a job that needs someone who can not only absorb changes in regulatory practice but can engage and help drive the business.
As with due diligence other labels need better definition and these definitions should not be product led, especially as Martin Wheatley recognises that in some cases doing nothing will be the right advice.
This week’s news that several distributors are actively considering a move from independence to whole of market restricted, made me realise just how stupid these labels are and we need to go back to fundamentals.
Let’s take independence first – it is far more important to be independent of mind than of product. This clearly impacts on selection of charging structures, after all if you need to invest or sell a product to get paid you are not independent. As fee levels come under pressure this is not sustainable.
Whole of market restricted is a crazy label if only due to its contradiction. It’s even worse when those using it sell places on their panels. I favour the term compromised adviser but I suspect others will not as the last thing they want is a label that reflects reality.
The conference I referred to was in Philadelphia where a good friend of mine lives before I headed home he took me round the old town and into his favourite pub where the manager is another Scot. The exiled Scot greeted me warmly and asked me to step into his “bus shelter” where he produced the favourite wine of Rab C Nesbitt – Buckfast, I declined his offer of a swig but my Irish friend did not and who know the long term effect of his rash decision. Let’s hope the FCA avoids the Buckfast of labels.
Robert Reid is managing director of Syndaxi Chartered Financial Planners