More extraordinary revelations from the former head of the fund industry
Posted by Robin Powell on February 3, 2016
I must say I can’t quite get used to the idea of Daniel Godfrey as a consumer champion. But he’s doing a brilliant job.
Godfrey was for three years CEO of the Investment Association — effectively the figurehead of the UK asset management industry. Viewers of Sensible Investing TV may recall me interviewing him for How to Win the Loser’s Game.
Then, in October last year, he was sacked by the IA board — apparently after a coup by some of the IA’s members, who were concerned that he was too consumer-friendly. They were particularly uncomfortable about the introduction of a Statement of Principles, which included a public commitment to put clients’ interests’ first and ahead of their own. So far just 25 out of more than 200 member firms are known to have signed up.
Godfrey now writes a regular column in the FT, which I would wholeheartedly recommend to anyone wanting a better understanding of how fund management and the wider financial services industry operates.
Some of the revelations in Godfrey’s latest post are quite astonishing. In it he addresses some of the items that investors in actively managed funds are paying for, in addition to annual management charges. Most investors are unaware that they’re being charged for these “extras” at all.
- in 2012, UK fund managers spent an estimated £1.5 billion (that’s right, BILLION) of clients’ money on “investment research”;
- much of that research is “valueless” and “even some of the research providers will admit that 90% of it is never read by anybody”; and
- also in 2012 about £500 million of customers’ money was paid to City investment banks in return for “corporate access” — in other words, simply being allowed to meet with company bosses.
Although charging for corporate access is one of the kickbacks that has since been banned, Godfrey’s view is that we still have a system that “creates irreconcilable conflicts of interest and cross-subsidy — both for investment managers and brokers”.
When someone who until recently was the spokesman for this industry warns of irreconcilable conflicts of interest, I for one am inclined to believe him. Let us hope, then, that those involved in the study that the Financial Conduct Authority is currently conducting into the value provided by UK asset managers are paying very close attention to what Daniel Godfrey is saying.
Also, given the serious repercussions of this story for the financial security of ordinary investors, is it too much to ask journalists to take more of an interest in Mr Godfrey’s on-going revelations?
To quote Michael Lewis, author of The Big Short, in a recent interview with The Spectator, about the hold that the financial services industry appears to have over the media:
“It amazes me, simply amazes me, that journalists aren’t all over these stories. Doesn’t it amaze you too?”