The Merrill Lynch and Unilever settlement has important implications for financial services, not so ...
The Merrill Lynch and Unilever settlement has important implications for financial services, not so much about performance as service standards.
At its heart Unilever was more concerned about whether Mercury, as it then was, was providing sufficient level of attention to the pension fund rather than the issue of actual returns generated. In other words it is the old adage rolled out time and time again by product providers: you can't guarantee performance but if you can guarantee good service clients will come back to you time and time again.
So if the fund management industry starts to crank up a doom and gloom machine then it is missing the point. There is no reason the settlement should lead to managers upping fees to protect themselves from possible action and moving to quasi indexation so they don't upset clients about underperforming benchmarks.
Whether funds are quasi indexed or not they will always go through periods of poor performance. The key is to explain to clients exactly how a fund is run and why it is performing the way it is, be that out or underpeformance. Plenty of the retail portfolios which are in favour with intermediaries now were unpopular not so long ago.
Neil Woodford at Perpetual refused to buy into the tech, media and telecoms story and was given a hard time for it by many in the industry. But a major reason he retained credibility, apart from his previous track record, was that he explained exactly what he was doing and why he was doing it.
The time intermediaries become disillusioned with fund groups is when they feel groups have not been upfront about the way a portfolio is run, be that in terms of style or manager. They might not go to the High Court but they don't tend to put business with that fund management group for a long time. Reputational risk is something all businesses have to be aware of, be that fund managers or intermediary firms. The Merrills and Unilever case underlines how important it is to be in contact with clients and ensure that a high level of service does not slip. One reason the large life companies have such a following is they have plenty of technical help to hand out to intermediaries when it comes to pensions. It is a useful service and it is rewarded by loyalty to the group concerned.
At a time when world markets are going through a sticky patch any client disappointment about investment returns is likely to be coming to the fore. It is by giving good service when times are tough that guarantees getting more and better business when things look up.
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Quarter of single pensioners dependent on state