While the investment management headlines have been focused on all things Covid during 2020, writes Graham Bentley, fund managers' marketing departments have been quietly practising their embroidery skills, decorating draft value assessments (VAs) with attributes requiring various degrees of invention
Fund groups haven't rushed to publish VAs. Dilatory hiring of independent non-executive directors (iNEDs) was certainly a factor, but given the lack of prescription from the regulator, many feared the proverbial scalping that typically afflicts publication pioneers, who have no early adopter mistakes to learn from. That has proved to be the case, with reporting being generally critical if not heavily biased towards the negative.
That criticism may be justified. The prevalence of expensive share classes, closet tracking and underwhelming performance makes any desperation to affirm 'good' value seem rather more like sewing sequins on a sack. However the vulnerability of iNEDs to regulatory censure has at least ensured that a number of asset managers' boards have bitten the bullet on pricing or management revisions, and in some cases fund closure.
That said, I would argue the requirement to evidence investment management value in isolation may be sub-optimal from a client's (versus peer groups' and the press's) perspective. Any coherent system of value assessment requires a common frame of reference.
In our industry's case, that is the client's overall experience of acquisition and ownership of retail investments. Unfortunately, accessibility to retail investments is inconsistent - for example, while M&G funds can be purchased direct, with no barriers to entry, others are not so easily available. Dimensional Fund Advisers (DFA) require the involvement of a financial adviser, and then only where approved by them.
The clients of advisers who are not persuaded to worship at that particular altar are effectively barred from access. Consequently, any benefits gained through fund selection will be affected by associated costs of ownership, i.e. advice. Furthermore, the bias towards platform use (even when buying a single fund) adds yet more to the total cost of ownership, with questionable associated benefits.
Just as there is no advantage in buying goods cheaper across town if the cost of driving there exceeds the price discount, so any VA in isolation from distribution costs will not fully explain the value actually experienced.
One of the FCA's key criteria for assessing value is quality of service. This has been sniffed at by some commentators, since a significant volume of investors rely on advice and/or platform custody and hence have no relationship with the underlying fund provider.
It can be argued therefore that there is no less an imperative for adviser-focused platforms, or advice itself, to demonstrate value. This need not be via separate reports, but rather an aggregated assessment of advice, investment, and custody. In other words, a 'Full-Service Value Assessment'.
So-called vertically integrated businesses who combine advice, asset management and platform custody are well placed to take this approach. Such firms might find a Full-Service Value Assessment to be a useful discipline, providing comparative pricing, performance and industry insights in a positive way. Articulating the value of the complete client experience more easily becomes advocacy rather than defence.
St. James's Place's (SJP) recently published VA has been constructed to incorporate the guidelines set by the regulator, flagging areas that require closer attention - potential manager changes and so on - but the depth and context provided by taking a Full-Service approach to the document's layout frankly turns a regulatory tome into a useful, straightforward, client-friendly document that is likely to be positively received by their customers.
Platforms are not required to demonstrate value. Advisers are not required to demonstrate value, particularly in respect of model portfolio services, and there is no framework within which fees (e.g. ad valorem, initial fees, trail from 0.5% to 1%, fixed) are judged relative to benefits of advice received (versus doing nothing, with no fee).
Fund value assessments should be in the context of the total cost of ownership. While one might argue with various elements of SJP's charging structure, their assessment of the value of the entire service - asset management, advice and custody - could well be a model for how customer-centric advice businesses in future might choose to better communicate their own Full-Service Proposition, and the aggregated value that delivers.
Graham Bentley is managing director of gbi2
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