#SFTW: Why do UK advisers still love active funds?
Posted by Robin Powell on January 12, 2018
It seems like yesterday that we were welcoming in 2018, and here we are, fast approaching the end of the second week of the year already!
There’s plenty going on. If you haven’t been on the TEBI lately, here’s what you’ve been missing.
Meh. Active management remains the default investment strategy for UK advisers
Three years ago I had some email correspondence with a fellow journalist, now working overseas, about why active funds were so utterly dominant in UK asset management — compared, for example, with the United States.
“The main problem for the UK,” my colleague said, “is the lumpen mass of IFAs. The entrenched interests in favour of active managers are that much more powerful in the UK than they are elsewhere.”
I recalled those words earlier this week when reading new research by Platforum on the funds held on UK adviser platforms. The findings illustrate just how wedded advisers continue to be to actively managed funds.
Francis Galton: The Victorian genius investors ought to know about (Video 1 of 3)
Some of us like stats, others prefer stories. Instinctively, like most journalists, I’m a story person. I’m fascinated in people, in news and historical events. I love making sense of complexity and identifying trends and patterns, even where they don’t exist.
Most of us, in fact, are story people. It’s part of who we are. From the dawn of human civilisation, storytelling has been the most effective way of transmitting meaning from one person to another.
But, in certain areas of life, our natural attachment to stories — our narrative bias, if you like — is not particularly helpful, and investing is undoubtedly one of them. What we really need to help us understand how investing and the financial markets work is a basic grasp of statistics.
Francis Galton and the wisdom of crowds: What do you know that millions don’t? (Video 2 of 3)
Imagine you’re at a village fête, and you decide to have a go at guessing the number of jelly beans in a jar. How confident would you be of guessing exactly right or, say within one or two of the actual number? Chances are, it’s a bit of a long shot.
From my limited experience of these sorts of guessing games, the spread of guesses is huge; some come in way under and some way over, and it’s actually very unlikely that anyone’s guesses the precise number correctly.
But, if you add up all the guesses and then divide the total by the number of people taking part, it’s amazing how close the resulting number is to the actual number of jelly beans.
This is a brilliant analogy for the financial markets. We should view the markets rather like a giant super-computer. Every time we buy or sell a stock we express a view as to what a particular security is worth. Some will think a stock is underpriced and buy, and others will think it’s overpriced and sell. Individually, our opinions may be way off mark, but who can possibly argue with the collective wisdom of millions of people, including all the experts?
The investing documentary everyone’s talking about
Have you watched Regis Media’s latest online documentary, Investing: The Evidence? The film was commissioned by the financial planning firm, RockWealth, based in Cheltenham, It sets out, in simple terms, the three main types of investing, namely active, passive and factor investing. It also addresses the issue of risk, the importance of good investor behaviour and, last but not least, the value of working with a first-class financial planning firm like RockWealth.
The complete film is 45 minutes long film in one go, but we’ve broken it down into six separate videos for those who’d prefer not to watch it all in one sitting. You can watch the entire film and the individual videos here:
For those who’ve been asking, we will be making branded versions of Investing: The Evidence — and its standalone parts — for evidence-based advice firms outside the UK from April, and for UK-based advice later in the year. Please note, however, that the number of licences on offer is strictly limited and they will be issued on a first-come-first-served basis.
We are also about to start work on a new, shorter documentary about evidence-based investing, and we will be making different versions of it for different countries. This film, too, will be rebranded for selected firms, but again, licences will be strictly limited per territory.
Firms that are interested in having their own versions of either of these series, or indeed in collaborating with us on another series, should contact Sam Willet, at email@example.com.
Setting the world to rights with Pete Matthew
It’s hard to keep track of all the podcasts out there about investing and personal finance, but there are a few that are definitely worth listening to. One of them is Pete Matthew’s MeaningfulMoney Podcast.
Pete has interviewed me for his latest episode. We discussed:
— evidence-based investing (what it is and what it means for investors);
— why the financial media has an important part to play in investor education;
— how financial advisers have been misled by the big fund houses in the past but are slowly coming round to the evidence-based approach; and
— our new documentary, Investing: The Evidence.
Also worth reading
A profile of the new man at the helm of the good ship Vanguard (Stephen Gandel)
Vanguard and BlackRock are seeing “eye-watering inflows” in the UK (Attracta Mooney)