Who do you admire and trust the most – your doctor, your child’s teacher, the lady that always brings your post? Would you put a fund manager on the same pedestal?
You might think the word ‘fund management’ applies only to those with big bucks. But if you’ve got a stocks and shares ISA there’s a good chance you’ve invested in a fund that’s being actively managed along the way.
If you’re saving for your retirement through a pension, your money is probably invested in funds. You might not have organised a pension yourself at this point but from 2012 onwards, employers will be obliged to offer a qualifying pension scheme to all employees.
Trumping the trust charts
Fund managers are concerned by their poor public image. One CEO of a large investment house recently said they wanted fund managers to be at the top of the list of people you trust, ‘right up alongside teachers and doctors’. While such ambitions are admirable, earning that trust is likely to take considerable time.
Statistics from investment intelligence agency Lipper show that typically only 40% of actively managed funds outperform benchmarks in the industry (such as the FTSE100) over the last 20 years. Not the fruitful news we’d have liked.
The average proportion of funds that earned the fees that you paid them by beating the benchmark was just 27% between 2010 and 2011. This rose to 40% over three years (2008-2011) and 35% over 10 years (2001-2011).
With such worrying statistics, it’s no wonder fund managers are under so much pressure to be more transparent on how much they charge you for their services. They also need to justify how they earn their money, when many of their customers have seen such paltry returns.
Suits me sir
But costs are only part of the story. More worrying is the continued sale of unsuitable products, such as absolute return funds – 51% of which have lost money in the year to 31 January 2012.
Managers must move away from a commission-based environment where in-house sales staff, as well as advisers, sell products that will best reward them, and not necessarily you and me.
Managers too often promise great returns in the long run, but trust is earned, not sold. Teachers and doctors earn it by educating and treating people, rather than just promising to.
If the fund management industry began aligning its fees and remuneration structures to performance would it ignite your trust or will you always reserve judgement on the industry?
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