There are two words that sum up everything that is wrong with the financial services industry and th...
There are two words that sum up everything that is wrong with the financial services industry and they are not 'bear market', they are 'adding value'.
It is a slogan wheeled out by marketing and sales departments of product providers across the country. It is what they claim their products do and it is what they claim intermediaries do for clients.
There is just one big problem with 'adding value'. It doesn't mean anything. It is a slogan that cannot be proved or disproved. As such, it is similar to when the prime minister appears on stage next to a sign saying 'hospitals, schools, fairness'. Three words that tell us nothing about the state of hospitals, schools or fairness in the UK.
If your clients asked you what you did and you said 'add value' it would not really help them understand what you do for them or how you did it.
Unfortunately, far too many investment groups have products that they claim add value. Do they really?
The truth is that adding value means adding cost. In a world of falling markets, providers are not making profits from equities so all too often they have to make them from clients. As intermediaries, it is vital to make sure clients get what clients need, not what providers need, which is money through the front door and fast.
Practically every group wants to get into hedge funds and sell them to clients via intermediaries. Is it any coincidence that the fees on hedge funds are high? Probably not high enough because the same groups now look to add in another layer of added value by running funds of hedge funds.
But do hedge funds offer anything a client shouldn't already get for the annual fee on a unit trust? If you want absolute returns, why not buy a fund that actively runs cash, bond and equity positions? Those that do have produced positive returns in a bear market.
The real problem is that all too often the financial services industry destroys value. All too often these 'adding value' products are destroyers of value. Technology funds did not increase the wealth of many clients.
Adding value should be dropped off a ledge higher than the Nasdaq at its peak. What it should be replaced with is the phrase 'fair value', a fair reward for a fair amount of work. Fund groups are stripping cost out of their business as fast as they can and to try and get profitability back, they are producing adding value products. Don't let your client base subsidise a group with products no one needs.
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