Response to the FCA AMR

Many in our industry will have spent much of the weekend pouring over the Financial Conduct Authority’s Asset Management Review announced to much fanfare last Friday morning by Chief Executive Andrew Bailey.
It makes some good points, such as:

  • The potential conflict of interest within investment consultants and rating agencies who also offer their own products
  • The need for meaningful benchmarks and a less complicated product landscape
  • Transparency over charging
  • The difficulty for the smaller investor to access the right product at the right price describing the lack of price competition in active management as ‘weak’

Within the 200 page document, there is a thinly-veiled criticism that the large asset managers dominating the industry are operating some form of oligopoly to protect profit margins.
We can see their point and often ask our clients why they might feel the need to encumber themselves with the problems of large investors and asset managers who have to manage many £billions of assets?  By doing so, retail clients are placing themselves behind the shareholder as investors in the queue of importance to most publicly-quoted asset managers.  While explicitly stating that passive investing isn’t always better than active investing, they could have signposted the connection with size of assets more clearly.
Essentially the asset management industry is run by large asset management firms managing the assets of large asset managers and charging the highest fee they can .  The sheer quantities of money make it difficult to manage vast amounts of money without reference to indices as benchmark tools, asset allocators and in portfolio composition.  To be clear, market indices are no more than reference points and certainly not portfolio construction tools.
To give you an idea of the perceived importance of asset size and flows, read almost any semi-annual investor statement from a large publicly-quoted asset manager and the focus is on size of assets under management and the flows over the relevant period.  Of course there is a connection between performance and the ability to attract assets but as the Asset Management Review also points out, consultants and rating agencies have not done the greatest job in awarding mandates to those that then deliver the best performance – they fall into the trap of buying what’s already gone up.
Too often we meet asset managers that have an opening slide or statement that they run over £100 billion in assets under management.  To us that means they are too big to succeed in delivering what we require to deliver the relevant investment outcome to our clients.
After the FCA Asset Management Review it is worth reminding investors of what T. Bailey Asset Management offers:

  • Two investment solutions that can be blended together to provide a further two risk-rated investment solutions.  The two cornerstone solutions each have a specific role to aid investors.  One, our Dynamic Fund is a complete solution that invests across all asset classes with the best not the biggest managers who are index-agnostic. It has a benchmark that investors can relate to – UK inflation plus 3% per annum.  The second, our Growth Fund delivers a global equity portfolio specifically designed to be a simple bolt-on to a portfolio of UK assets.
  • Both funds are accessible to all investors from those with £1,000 to invest to much larger but all through our cheapest institutional share class with an annual management cost of 0.60% per annum.  The ongoing charges fee is clearly displayed on our monthly factsheets and on the Key Investor Information Documents (KIIDs) available on our website We believe in transparency.
  • Both funds can be used for most wrappers from SIPPS, ISAs to Junior ISAs.

Our returns after fees would suggest that active management can be worth paying for if you choose the right manager, especially in relation to an investment outcome rather than a spurious index.
Appropriate size, transparency, integrity and reassurance emanating from a family-run business are in T. Bailey’s DNA as is putting the investor first.  The FCA has gone some way to addressing some key issues in our industry, it’s a shame they didn’t make size more of an issue and its relevance to retail investors.

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