The fund industry is not your friend
- Robin Powell
- Mar 3
- 3 min read
Many people still believe that investment companies exist to help them. The reality is quite different. The fund management industry is extremely powerful, and its main priority is not your financial wellbeing.
Instead of focusing on consumer outcomes, it tends to protect its profit margins. According to financial analyst LOUISE COOPER, the industry thrives on complexity and confusion. It has become skilled at making investing seem harder than it really is.
Key takeaways
1. The fund industry's power often works against you
COOPER points out that the fund industry plays a major role in shaping people's financial futures, especially through pensions. Yet it rarely welcomes scrutiny. Highlighting its excessive profits is seen as a threat, not a public service.
The more opaque the system remains, the more money fund managers can make. This leaves ordinary investors at a serious disadvantage.
2. Jack Bogle helped change the landscape
There has been some progress. Much of it is thanks to JACK BOGLE, the founder of Vanguard. By promoting low-cost index funds, Bogle forced the entire industry to reduce its fees.
He made it possible for millions of people to invest more cheaply and retire more comfortably. But despite his impact, the industry’s trade bodies gave him little recognition, which speaks volumes about where their loyalties lie.
3. Regulators and politicians are not much help
COOPER is highly critical of regulators, describing them as ineffective. She argues that many politicians do not understand financial services well enough to drive meaningful reform.
The result is a lack of pressure to fix the system. Consumers are left to navigate a confusing market without proper protection from those who should be looking out for them.
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TRANSCRIPT
Robin Powell: An important lesson for investors to learn is that the fund management industry is not their friend.
What’s good for the industry is usually bad for the consumer, as Louise Cooper explains.
Louise Cooper: Most people don't quite understand the power of this industry and how important it is to their own financial future. You know, it determines, you know, your pension determines whether you have a retirement of joy or a retirement of poverty and misery.
It's a really important industry and is therefore extreme powerful. And it does not like those who highlight quite how much money it makes out of deluding and confusing investors.
RP: Thankfully, consumers DO have a better deal now than they used to.
That’s partly down to one man, the late Jack Bogle, who made low-cost passive investing mainstream.
LC: So this is the man who brought passive investing to the world and has done the most to ensure that millions and millions, tens of millions, if not hundreds of millions of people around the world have much better retirement than they ever otherwise would have had.
Because he has driven fees down relentlessly at the company he founded, Vanguard, and across the industry because they have to compete with Vanguard, the American Investment Association, the sort of the lobby group of the US fund management industry, despite Jack Bogle being the most revolutionary man in the industry, has not invited him to speak is annual conference.
To me, that says all you need to know about the focus of importance of most of the fund management industry.
It's not us as consumers, it's not us as investors. It's their own bloody profit margins.
RP: You might be wondering why it falls to the likes of Jack Bogle to protect investors’ interests. What about politicians? And what about the regulators? Surely they should be doing more.
LC: I'm pretty damning of regulators. My personal experience has been that I think they're almost useless, almost pointless. So it's no surprise to me that regulators do not crack down on this industry any way near enough.
The other issue is that this is complex. And so politicians often drive rules and regulation, and often politicians just don't understand the world of high finance. I mean, that is being demonstrated time and time again, particularly during the global financial crisis.
So that's another problem.
It's a complex industry that politicians often don't understand. And so the push from the lawmakers to the regulators often doesn't happen as well.
RP: The lesson, in short, for consumers, is to wise up.
Remember: your priority as an investor is you — not adding to the profits of the industry.
