This coming Monday, 20th February, is the deadline for commenting on the interim report by the Financial Conduct Authority on competition on UK asset management.
Here is TEBI’s response.
Robin Powell
The Evidence-Based Investor
The Financial Conduct Authority
25 The North Colonnade
London E14 5HS
17th February in 2017
Dear Sir or Madam
Re: Asset management market study
I am writing in response to the interim report on your study on competition in UK asset management. I write in my capacity as a freelance journalist, as the editor of the investment blog, The Evidence-Based Investor, and as an Ambassador for the Transparency Task Force.
I would like to congratulate the FCA on a comprehensive, thoroughly researched and well-written report, the findings of which, broadly speaking, I am very much in agreement with. In the five years years that I have been working in the investing industry, I have been genuinely shocked — and continue to be so — by its conflicts of interest, its lack of transparency and, most of all, by the almost complete lack of value delivered to end investors.
I understand that the Investment Association and the major City fund houses have been lobbying hard to have your proposals watered down, but I trust that you will stand firm and that the final report will be substantially similar to the report issued in November. If it is, I believe that this will prove a watershed moment in the industry’s history, and that the benefits will be felt by both retail and institutional investors across the UK.
However, if I may, I would like to raise what I believe to be a fundamental issue that you have not addressed so far — namely the conflicts within financial journalism and the negative impact those conflicts have on competition in asset management.
Overall, as stated in your report, your evidence suggests that actively managed investments do not outperform their benchmark after costs. This is, of course, consistent with many decades of independent and peer-reviewed academic research.
There does, however, continue to be a widespread misconception among the investing public that active management does add value. Actively managed investment products, after all, remain far more popular in the UK than cheaper, passive alternatives.
In my view this is principally down to the fact that, over the last 30 years or so, the overwhelming impression given to investors and financial advisers by both the mainstream media and the trade press is that the best way to invest is via actively managed funds.
Investment journalism is inherently conflicted. The salaries of investment journalists and the publications they work for are effectively paid for by fund industry advertising. More than that, journalists have a constant need for new “stories”. Sensible investment advice remains the same, but because journalists have pages to fill, they need to keep writing about new products and new ideas that almost invariably fail to deliver the outcomes they seem to promise.
Indeed, newspaper money sections and investing magazines have become businesses in their own right. Investors read them under the misapprehension that they offer impartial and expert advice, but all too often, the products featured are the ones the industry wants to sell. More worryingly, active fund managers or brokers are being held up as impartial experts, and in some cases are even being employed as correspondents.
Although I have great faith, generally, in the personal and professional integrity of my fellow journalists, fund houses continue to make concerted efforts to undermine editorial independence. For example, the wining and dining of journalists, industry-sponsored journalism awards, the offer of theatre and sporting tickets and press trips to New York are all common practices and do nothing to instil public confidence in the standard of investment journalism.
Thankfully, there are encouraging signs that UK journalists are becoming more aware of the academic evidence on fund performance and of the considerable impact of compounding fees and charges on net returns. Nevertheless, it is hard to bite the hand that feeds, and the system remains open to abuse.
I would urge you, therefore, to consider including a section on the financial media in your final report — or, better still, to conduct a separate study on this important issue.
Yours faithfully
Robin Powell
Related posts:
The lowdown on the FCA report on asset management
FCA report on UK asset management: The TTF response
Nonsense laid bare: The Centre for Policy Studies responds to the FCA report
The official report on asset management every investor should read
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
