By Leo Bland Philip Warland has been director general of Autif for 10 years but is leaving the trad...
By Leo Bland
Philip Warland has been director general of Autif for 10 years but is leaving the trade body to join PricewaterhouseCoopers at the beginning of next month. His new role will be as a senior adviser in the financial services division, where he will work on developing the group's investment management regulatory consulting practice across Europe.
Much has changed in the fund management industry during the last 10 years, including the number of groups Autif represents and the clout it has established. Peps were introduced and then discarded in favour of Isas. Oeics were brought in, and new regimes, concerning capital gains tax and stamp duty, were established.
Investment Week talked with Warland about the changes over the past decade and his thoughts on what is ahead for the UK asset management industry.
What has changed most over the past 10 years in the fund management industry?
When I came to Autif, unit trusts were a specialist product and now they are mainstream: it is as simple as that. Institutional investors used unit trusts, as did the better, more specialist IFAs, and stockbrokers used them a little. But now you have got to have unit trusts.
Persuading the Government about the benefits of unit trusts, that is ministers, MPs and civil servants, and educating them about the nature of investment funds. Those in Government did not understand the characteristics of these products and that they are very distinctive. The civil servants got it quite quickly but it took longer with the politicians.
When the Oeics legislation was going through in 1996/1997, Alistair Darling was in the opposition Treasury team and in talking to him we could explain to him about Oeics and unit trusts. Now that he is secretary of state for social security, stakeholders have been based on unit trusts. The education process is still not over, as there are still MPs who do not understand the difference between investment funds and a life policy.
The other challenge is maintaining the dialogue with members so that they understand what we are trying to do. We do not want to be an office that has its own agenda. But equally, we have to explain to members that we cannot take a course of action if the majority of the membership is against it. We have to broker a relationship with our larger members and we have agreed that if we are going to disagree with one of them, we will let them know before it goes public.
Equally, if we are going to do something and one of them does not support the policy, they would tell us first so that there are no surprises. It is all about building trust.
What have been your main ach-ievements at Autif?
Educating people about the nature of investment funds and the principles that are built in. Also, getting the £6,000 rule for Peps turned out to be even more significant than we thought at the time. Another achievement was stopping the £50,000 cap on Isas. To do this we ran a political campaign saying to the Government that lots of people who voted for Tony Blair were people who were approaching having £50,000 in Peps and Isas and that this was not a vote winner.
We also pointed out that people buying Peps and Isas were increasingly from lower down the social and income scale. Behind the scenes we got the Inland Revenue concerned about how they would introduce it. The Oeics legislation in 1996/1997 was also significant. It was not easy to get new legislation through and we had massive cooperation from the Treasury.
Do you view stakeholder pensions as an opportunity for fund management groups?
They are an opportunity but they are a huge challenge as well. The good news is that stakeholder pensions are built on a business model that we are used to: groups do not tend to start making money on a unit trust product for seven to eight years as is expected with stakeholder pensions. The bad news is that stakeholder will be about mass distribution and if you want mass distribution you go to the mass distributors, such as the life companies, banks and building societies. The fund management companies will have to get on the stakeholder panels of these companies, and these companies are likely to start behaving like an institutional customer in terms of putting pressure on charges. I think volumes will increase and that it will be good for the fund management industry.
How significant do you feel electronic trading will become in the retail fund arena over the next few years?
I believe that within five years 95% of transactions between industry providers and IFAs will be done through EMX. The reason for that is that the cost savings are phenomenal.
For a unit trust transaction, at the moment the cost for the provider is about £15 to £35 per transaction and is similar for IFAs. A Crest transaction, fully automated, costs around £2 to £3 and a mutual fund transaction in the US which is fully automated, costs 50 cents.
My guess is that there are 10 million unit trust transactions a year in the UK and the savings on these will be 90% plus. In terms of internet distribution of mutual funds, I think that the brand wins and that distributors will have to have e-capability.
I am not saying that direct trading over the internet is going to grow that quickly. What people will use the net for is information, they will scan the net for information about funds. Brand is important, people will go for someone they know and the IFA brand will also remain important.
IFAs have got to be e-capable, but they should not expect to get a lot of business through it. It will help brokers by getting people to access up-to-date valuations of their portfolio through their IFA's website, rather than calli
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