/ Money

Trust me, I’m a fund manager

3 figures on a pedestal

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?

Comments
Profile photo of VynorHill
Member

Your statistics in this introduction answer the question you pose. It’s not really a question of trust. This implies that fund managers are devious and duplicitous, using questionable tactics to attract investment. I’d like to think that most managers are, basically, honest citizens who do the best they can. The problem they have is that there are so many national and international variables affecting the decisions they make that it’s no wonder things are as bad as they are. Despite all the computer aided researchers and offices full of traders the money market is so volatile that even the cleverest of managers are bound to fail more often than they succeed; hence the gloomy figures you print above. Throughout history and even biblically, money transacting has been looked upon as a dirty trade. Obscene bonus payments don’t help that image today. In order to put the fund managers on a pedestal the whole system needs a good spring clean.

Profile photo of william
Member

Trust a Fund Manager, I think not. Whether your investment is going up or down they’re still taking money from it. Now is Fund Mangers only got commission during the rises ….

I’d love to administer my own pension fund. I can’t do as badly as some fund managers (I’d be 1-2% up before I start due to no annual charges).

Profile photo of Patrick Taylor
Member

“But costs are only part of the story”

Actually I could see no details of the costs in the article so that part has eluded me. However I do understand that some investment managers lend out stock for a fee and this goes to them rather than the fund that owns the stock. Obviously disgraceful. It is hard to discuss fees without taking into account other ways money is made by the managers.

I recommend that every one reads this article
http://www.guardian.co.uk/business/2011/aug/31/stock-lending-short-selling

“In total, 19 of the 20 funds examined by SCM have made provisions to lend up to 100% of their clients’ shares, with half found to have participated in stock lending. SCM said that just 66% of the gross income from stock lending is returned to clients’ funds on average – but that figure could be far lower, in reality as the number is derived from just seven of the 20 funds which actually disclose their charges. The rest of the money generated goes to the fund managers.”

Looking at the whole picture is useful

As for some investment managers doing better than others it is the nature of investing that everyone cannot do equally well but also it is very important to look at the time spans and see if they make sense – and if anyone is window-dressing their results.

My own portfolio is a complete loss area – currently. However I have been investing in technology companies for the last decade and that has been very rough however this time next year I may be on a handsome return after recovering my losses. So on a decade measure I might look very good but any year between 2002 and 2013 wold be a disaster area.

I will say from what I have seen of investment managers I am not overly impressed. After all a lot of them had huge sums invested in HBOS and RBS and any true banker could have told you they stunk in terms of lending wisely. Unfortunately there is not the time and space here to go to town on the subject. Just have a healthy view on how smart are they really.

Member
Gerard Phelan says:
6 May 2012

I have a number of funds invested with different fund managers. The difference in information provided is enormous. Some like Aviva, Fidelity and Invesco send me thick glossy brochures twice a year (naturally at my expense) which purport to justify the lacklustre performance of their funds. Others like Jupiter and Henderson send thin leaflets that still manage to explain their slightly better performance. For the future I been moving investment funds to Fundsmith, who have a policy of transparent low costs. It is too early to make any comparison in results from their approach.

Profile photo of william
Member

Anyone with an endowment to cover a mortgage will probably have received letters saying WARNING insufficient funds to cover, take action now. Yet the only action these Fund Managers advocate is you paying more into the same under performing, fee rich product. I’d trust them more if they suggested reducing their fees or maybe working harder to gain a better return rather than the typical you need to pay more.

Member
How To Avoid Investment Scams says:
23 January 2013

I am not certain where you’re getting your info, but good topic. I must spend a while finding out much more or figuring out more. Thanks for great info I was looking for this info for my mission.