The Government's vision of Sandler stakeholder is comprehensive but to make the concept a success th...
The Government's vision of Sandler stakeholder is comprehensive but to make the concept a success the suite of products will need to be effectively benchmarked.
Intermediaries know the importance of putting clients into funds with a clear mandate and where the manager has a defined way of running money. It means the manager knows what he is doing and the client knows the performance characteristics that accompany this.
A benchmark or stated aim not only gives the manager some guidelines on how to run the portfolio, it gives investors guidelines on what to expect. The big question that needs to be answered is what should an investor in the various Sandler stakeholder vehicles expect to get back in the future? In fairness to the Government and the investment industry the future of the markets is impossible to predict, which is why no one is keen to make promises. Promises can all too easily become guarantees and if the markets move against you disaster threatens ' just ask the with-profits industry. While the future is unclear, what is certain is that managers can be asked to go for absolute or relative returns. Each style has its potential advantages or disadvantages but at least investors should know how their money is being run.
The Government has been very keen to try to shape the industry and its economics with the pricing cap. What would be more useful, and effective, is if it tried to shape the attitude of the industry and investors towards a reasonable way of running and investing in the various Sandler stakeholder products. Its Sandler stakeholder response implies that it is tilting towards absolute returns. For the non-pension medium term investment product, the emphasis is on the importance of diversified asset allocation and steering clear of excessive equity exposure. At some point in the future, equity markets will shoot up and fixed interest markets collapse, and these managed products will be left behind by other funds. Unless investors in Sandler stakeholder know why they bought it in the first place they are likely to feel let down. The challenge the Government faces if it wants to make Sandler stakeholder a success is consumer education, whether that is in schools or from financial advisers. Its response so far is not encouraging. It does not want to associate itself too closely with the products it thinks that might look like a guarantee, but it is prepared to look at designing a stakeholder logo. The last time the Government had a stylish idea but skimped on substance we got lumbered with the Dome. Let's hope we don't get the financial services equivalent.
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