Real change in the investment industry is needed to drive alignment of interests along the value chain, delegates at the CFA Professionalism Conference heard, as panellists criticised the current state of communication between fund managers and asset owners.
Consumer trust in the investment process will remain low if the industry continues to conduct business in an alternate reality, Saker Nusseibeh, chief executive at Hermes Investment Management, told delegates at the CFA Professionalism Conference on Tuesday.
The investment industry should seek to serve the “ordinary beneficiary”, Nusseibeh said, identifying a disconnect in the status quo.
Fund managers’ business models are driven by what investment consultants tell them, rather than by independent research or views on the market
Sarah Smart, The Pensions Trust
“The financial system has nothing to do with the world we live in, but the real world is affected by decisions the investment community makes,” he said.
The role of intermediaries
The Financial Conduct Authority’s market review of the asset management industry, launched at the end of 2015, shows mistrust is rife all along the investment chain, from savers to regulators.
The UK watchdog is reviewing cost control, competition and conflict of interest across the asset management and investment consulting industries; particular scrutiny is cast on investment consultancies with a fiduciary management arm.
In a panel discussion on how the investment industry can better meet clients’ needs, Sarah Smart, trustee chair at multi-employer scheme The Pensions Trust, said intermediaries in the pensions industry are adding a “level of obfuscation” to the investment process.
“Fund managers’ business models are driven by what investment consultants tell them, rather than by independent research or views on the market… what consultants can sell as a product,” she said.
But over the next 10 years, consultants will be challenged to respond to increasing consolidation in the market.
“When you have big in-house teams you see the consultants left out – they need to shake up their business model ready for a new environment,” she said. “The institutional environment is not going to look like it does today.”
Smart said “real change” is necessary to improve how fund managers and asset owners communicate about processes conducted on behalf of members.
“I'd like fund managers to spend more time understanding my overall portfolio and overall objectives, then talk to me about what they can do to meet some of those needs,” she said.
Culture change
The gap between savers and the investment community is one factor behind low levels of long-term saving in the UK, said Robert Gardner, co-founder of investment consultancy Redington.
The UK has reached an “inflection point” he said; an impasse between the old world of defined benefit provision and a fast-developing era of defined contribution pension arrangements.
“The world of DC needs us to be saving more,” he said, adding that savers will only contribute more if the current disconnect is challenged and broken down.
