The chairman defends his manufacturing costs
'I suppose it was only a matter of time before you got around to asking me that,' sighed the chairman of the insignificantly sized investment company SmallBlue Planet as we sat drinking in The Moody Rhino. 'Don't get me wrong ' I'm not embarrassed but although we've known each other many years it's still a little awkward. Nevertheless you're a growing boy and it's better you find out the facts of life from me than somebody else.'
'I think my question was more along the lines of where financial products come from,' I said hastily. 'Same difference,' shrugged the chairman. 'Now let's see. How ¦ oh, I know ' when a product developer and a marketing director love investment fees very, very much, they get together and ¦ and ¦ no, wait, I've got a better idea. I'll show you.'
As it happens, over the years I've heard more disturbing suggestions from the chairman and so I wasn't overly surprised shortly to find myself back at SmallBlue Planet's offices, down in the basement and standing in what looked like a tailor's dressing room in front of a full-length mirror.
'I'm standing in what looks like a tailor's dressing room in front of a full-length mirror,' I said by way of conversation. 'Think of it more as a door,' said the chairman. 'Oh, I get it,' I said. 'What you're saying is that the world of product development is such a completely illogical environment that it's a bit like being through the looking glass. It's a metaphor.'
'No, it's definitely more of a door,' said the chairman pushing past me and pressing the mirror so it moved back to reveal a large hall and a number of other doors. 'The mirror's not ideal as a secret passage cover but when we built this place we'd just run out of giant portraits and sliding bookcases. Come along and meet our product development chap. He's Walter Mitty.'
'You mean he's a hopeless dreamer with a tenuous grip on reality?' I said. 'No,' replied the chairman. 'I mean his name is Walter Mitty. You know, you really must stop looking for hidden meaning in everything I say. This is real life.'
'Of course it is,' I said shaking hands with the newly arrived Mitty. 'So can I ask you both about the recent real-life report that said the retail fund market currently wastes up to £700m a year in unnecessary manufacturing costs associated with running smaller, uneconomic funds.'
'I think that's wide of the mark on a couple of counts,' replied Mitty. 'First, I would maintain no manufacturing costs can ever be described as unnecessary. Second, going purely by what SmallBlue Planet spends on smaller, uneconomic funds by itself, your figure of £700m seems a little on the low side. Wouldn't you agree, sir?'
'Absolutely,' nodded the chairman. 'Miles out. Go on ' tell him about Project Totally Legal But Hugely General.' 'A fine way of illustrating the point, sir,' said Mitty. 'You see, a few weeks back the top number-crunchers at SmallBlue made a startling discovery ' did you know that one group alone runs no fewer than 16 funds in the UK All Companies sector? That's a touch over 5% or one-twentieth. They've also got six in the UK Corporate Bond sector, which is one-thirteenth of the total. Well, it doesn't take an Einstein ' although we do have Albert's second cousin working for us ' to work out that having that many funds in two high-profile sectors is a sure-fire way of always having a couple of top performers the marketing boys up above ground can brag about.
'So we've set ourselves a target that, by the end of the year, 10% of funds in the UK All Companies, UK Equity Income and UK Corporate Bonds sectors will have the SmallBlue Planet brand.' 'Brilliant or what?' beamed the chairman. 'Of course, we know that report you mentioned reckons even funds of £40m will struggle to turn a profit because their running costs are likely to be far more than their annual fee generation.
'But the positive effect of one killer fund on the whole brand is not to be underestimated and we believe we've cracked how to do it. It's a bit like those chaps who submit hundreds of teams to a fantasy football league and after a while only run the successful ones ' in the end, the most difficult thing is coming up with the names. What do you think about the SmallBlue UK General Equity Capital Growth Accumulator Stockmarket Fund?'
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till