In the latest in his series for Professional Adviser reviewing the hot topics that have been keeping him busy over the past month, John Husselbee argues succession planning is an issue for managers and advisers alike
As a Tottenham fan, it hurts me deeply to have to admit Sir Alex Ferguson has been the most successful football manager of our lifetime, if not throughout the game's history. In more than 26 years of managing Manchester United, Ferguson won 38 trophies, including 13 Premier League titles.
Since Ferguson retired in 2013, Man Utd have already parted company with two of his successors. The club have won one FA Cup and one League Cup over the past four years - but not the Premier League.
This illustrates the difficulty of replacing such a successful individual. It is not just a question of finding a good manager but also one who is the right fit for the culture of the club and the particular demands of the job at the time of recruitment - and who is at the right stage of his career. This is relevant for all of us given succession planning is becoming an increasingly important issue for fund management and financial advice.
Over the past 20 or 30 years, we have seen the emergence of ‘retail' fund management, including the rise to prominence of star fund managers. When I started analysing fund managers in the late 1980s, most investors were unlikely to know much about the individuals and teams running their money but now many enjoy high profiles with consumers as well as advisers.
We have been seeing the first of these star managers retiring over the past few years. As an example, Angus Tulloch, whose expertise in Asian and emerging markets has produced considerable returns for investors over more than three decades, recently announced his retirement. This was followed by JO Hambro's John Wood calling time on a 26-year career in fund management, during which he has become known as among the "best of British" equity managers.
As with any football club, succession poses many challenges for asset managers. Appointing the right fund manager or managers to fit with the specific objectives and investment process of the fund, as well as the culture of the asset manager, is crucial. Investors need to evaluate all these factors before deciding whether to remain invested or switch to another fund.
I do not, however, wait for changes of fund managers to make these evaluations - in fact, I always look at the motivations of any fund manager as part of my review process. But whether it is this or the retirement of a manager that prompts a change within our portfolios, I know I have a large enough bench of replacements - in what I call my ‘waiting room' - on hand.
Names such as Anthony Bolton, Bill Mott and Roger Guy - once all staples of multi-manager funds - have left the industry and we were able to get over their departures. Indeed, I would suggest if one manager is so integral to a portfolio's performance their retirement has a detrimental impact, further diversification is required.
While the departure of a fund manager is ultimately endurable - albeit inconvenient - for investors, it can be extremely damaging for asset managers, and succession planning has therefore become a significant focus for CEOs.
We have seen a growing trend towards long notice periods as fund managers announce plans to step down a year or more into the future. Asset managers are also highlighting their investment processes and investment teams, meaning there are potential replacements to step in if the lead manager should leave. For me, this master and apprentice structure is probably more feasible in larger firms with greater resources, where there is real potential for multi-generational teams.
Succession planning is also an issue for financial advisers, for which the average age continues to rise. Having toured around the country over recent months for adviser roadshows, there seem to be ever fewer young faces in the audiences - which means the advice sector potentially faces a huge drain of both numbers and knowledge just as a significant proportion of the population needs their services more than ever before.
Attracting new, high-calibre recruits into financial advice and ensuring successful succession planning are essential both for the profession and the clients who depend on it for their future well-being, including their own prosperity in retirement.
We are at an unprecedented point for the financial sector, with pension freedoms creating huge new opportunities for advisers and asset managers. Continuing to recruit and appoint the best-quality fund managers and advisers is key to making sure the industry takes advantage of these opportunities as well as having a sustainable future.
I am confident they will achieve this given they offer attractive careers to the brightest and best. Active fund management and financial advice are also under greater pressure than ever before to demonstrate their value, which I believe they will be successful in doing.
I will leave you with one final thought. While none of us is getting any younger, we must think about the younger generations and how they will want to access fund management and financial advice over the coming years and decades. This will be one of the other great challenges for our sector.
John Husselbee is head of multi-asset at Liontrust
Don't miss Professional Adviser's Multi-Asset Roadshow, which visits Birmingham, Bristol, Harrogate, London and Manchester between 25 April and 4 May 2017.
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