The Evidence-Based Investor

Tag Archive: Jim Coney

  1. After Cowspiracy and Seapspiracy, is it time for Fundspiracy?

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    This article by ROBIN POWELL was originally published by the Suitable Advice Institute.


    It’s ten years since I first started writing about the skeletons in the closet of the investing industry. In that time, I’ve often wondered what other industries are hiding secrets secrets that would horrify consumers if they became generally known. Judging by the powerful new Netflix documentary Seaspiracy, fishing is a strong candidate.

    One of the issues the film explores, the appalling plastic pollution that endangers marine wildlife, you surely already know about. But there are others, just as shocking, that you probably won’t — the prevalence of modern slavery in fishing for one.

    The overriding message of Seaspiracy, however, is that there’s a simple truth that no one is willing to admit — that commercial fishing is the main driver behind the destruction of the marine ecosystem. The only sustainable solution to the problem, the film argues, is to reduce our consumption of fish.


    Direct parallel

    There’s a direct parallel here with the investing industry. It too hides a big secret. In short, most of the products it provides are so expensive and so ineffectual that they extract value for consumers rather than adding it. Yet there are so many players who benefit from the status quo that a conspiracy of silence has developed. Rather like the cast of The Emperor’s New Clothes, nobody wants to point out the glaringly obvious — that the vast majority of investors would be better off simply buying and holding low-cost index funds.  

    Managing other people’s money is, after all, enormously lucrative, and it’s not just fund managers who benefit. Every time a fund manager trades, there’s a queue of people from brokers to custodians who need to be paid. As Warren Buffett, it would be “career suicide” for an investment consultant to recommend buy-and-hold indexing. Despite all the evidence that picking winning funds in advance is all but impossible, there are still many financial advisers who also like to give the impression that they possess that coveted skill.

    For fund supermarkets, the challenge is straightforward: gather as many assets under management as possible. The easiest way to do that is to exploit consumers’ ignorance, behavioural biases and emotions such as fear and greed, by promoting “star” managers and providing lists of recommended funds they can choose from. 


    Not even the media is immune

    Alas, even journalists are conflicted, not least because their jobs and salaries depend on advertising revenue from the companies they write about.

    As Iona Bain explains in her new book Own It!, most people don’t realise that “fund houses have big budgets to take journalists out to the pub, theatre, sporting fixtures and dinner at top restaurants”.

    “Being a journalist myself,” says Bain, “I know the effort the media makes to be independent. But it’s difficult when so much material needed to cover the world of investing, like market analysis, is so helpfully supplied by platforms and the fund industry.”

    As a freelance journalist I come across this tension all the time. I’m often asked to write an article or provide a comment from — steady on! — a consumer or evidence-based perspective. But when the firm or publication concerned sees what I have to say, they often change their minds.

    I doubt that the mainstream broadcasters would have dared to make a film like Seaspiracy. The questions it raises are just too awkward. There are too many powerful vested interests with too much to lose from having them debated — not least governments, which continue to support the fishing industry with huge subsidies.


    Even the good guys come off badly

    For me, the most depressing aspect of Seaspiracy is that even the good guys come out of it badly. The film alleges, for example, that the Earth Island Institute licenses firms to use the “dolphin-safe” without properly checking their credentials, and that certification by the Marine Stewardship Council is no guarantee of good practice either.

    Again, these are commendable organisations which have doubtless achieved a great deal for marine conservation. The problem, though, is that even they have a financial incentive. They heavily rely on the income that issuing these labels and certificates provides to carry on the work they do. 

    It’s a similar story in asset management. Even firms that champion low-cost indexing have active funds to sell, and those are the funds that generate the bulk of their income. Coming out and telling consumers the whole truth would be extremely damaging to their businesses.

    And, of course, funds can pay for official endorsement just like fishing firms. The benefits of a star rating, inclusion on a best-buy list or favourable media coverage are all considerable. As long as you’re happy to pay for it, you will always find someone who’s willing to promote you.


    Change will come from within 

    How we tackle the code of silence that exists in fishing and investing is a complex question. Simply acknowledging that it exists is a start. Ultimately, though, we need firms within those industries to cry foul. As Jim Coney puts it in his latest Sunday Times editorial, we need firms “to break the first rule of the fund management club: you never talk about the fund management club”.

    And how about a Netflix documentary? After Cowspiracy and Seapspiracy, is it time for Fundspiracy? (Let me know if you’re interested; I’d be keen to talk to you.)

    In the meantime, if you haven’t watched Seaspiracy, please do. Be warned, though: some scenes you may find stomach-churning. Fish finger sandwiches may never taste so good again.



    The ESG momentum trade is fraught with danger

    The uncanny parallels between Neil Woodford and Bill Gross

    Sustainable investing is about returns we may never notice

    Do investors allocate optimally to ETFs?

    There’s more to life than trading stocks

    Do we become better investors as we age?

    Latest figures offer little comfort for Canada’s stockpickers

    Fintech is booming — but can Britain keep up?



    Through our partners at Regis Media, TEBI provides a wide range of video content for financial advice and planning firms.

    For firms in the UK, we can either come to you, or you can come to Regis Media’s studios in Birmingham, where we have a full white-screen set-up with lights and autocue. For firms outside the UK, we’re happy to talk through the options with you.

    If it’s educational content you’re looking for, we have more than 200 pre-produced videos which can be tailored to include your branding, contact details and call-to-action.

    Interested? Email Sam Willet, who will be happy to help you.


    © The Evidence-Based Investor MMXXI




    Picture: Andrea Piacquadio via Pexels
    © The Evidence-Based Investor MMXXI
  2. St James’s Place: Who’s paying for the drinks?

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    I wrote a few months ago about an invite I received to a “complimentary” event at a country hotel from a firm called St James’s Place Wealth Management. I’m sure I would have enjoyed the setting, as well as the food and drink on offer. But I’m equally sure that the investment advice dispensed that day was of rather more dubious quality.

    Generally speaking, these sorts of events are best avoided. But it’s especially important, in my view, to steer clear of firms like St James’s Place.

    My reasoning was very well articulated in a piece by Jim Coney in the Sunday Times (21st July 2019), The title tells you everything you need to know: St James’s Place is a money-making machine — for itself.


    A new client every ten minutes

    St James’s Place, or SJP for short, is Britain’s biggest wealth management firm. In 2018 the company signed up a new customer about once every ten minutes and made an operating profit of more than £1 billion.

    Why such a big profit? Because, in short, having your money managed by SJP is staggeringly expensive. In a separate article, in the same edition of the Sunday Times, Ali Hussain spelled out the eye-watering effect of fees and charges on an investment of £1 million, growing at 6% a year.

    “The client,” claimed Hussain, “would lose a whopping 43% (£340,743) if they held the firm’s most popular balanced portfolio. Over 20 years, the client would lose 45% (£993,658).”

    Yes, you read that correctly. To invest £1 million with SJP, you’re paying almost another £1m over 20 years. It’s completely bonkers. Remember, it’s your money. You provide 100% of the capital, you take 100% of the risk, and yet, in that particular example, you’re giving up almost half of your returns in costs.


    Who’s paying for the drinks?

    “Think about this,” writes Coney, “the next time you see your friendly SJP adviser ordering a round of drinks at the golf club. When he slaps you on the back and says, ‘I’ll pay for these,’ you may want to point out that he isn’t paying. You are.”

    St James’s Place is an example of what’s called a vertically integrated wealth manager. As well as by charging for advice, it also makes money from the fact that its advisers recommend SJP’s own products.

    It’s a highly lucrative business model. The more the adviser persuades clients to invest, the more he or she is paid.

    If that sounds to you very much like the advice industry in the 1980s, then you’re right, it is. Advisers, in those days, were paid commission for selling investment products. Commissions were banned in the UK as part of the Retail Distribution Review, or RDR, which came into effect at the end of 2012. But, you could argue, at firms like SJP, commissions still live on in all but name.

    Another example of a vertically integrated investment firm is Hargreaves Lansdown. Over 20 years, the Sunday Times calculates, investing £1 million with Hargreaves Lansdown means losing 29% of your returns in fees and charges. No, it’s not as expensive as SJP, but £643,728 is still a vast sum of money to have to forgo, just for having your money managed. Can anyone honestly call that a fair return?


    How much should you pay for good customer service?

    In fairness to both St James’s Place and Hargreaves Lansdown, both are renowned for providing a high level of service. But no matter how good the service is, does it really warrant paying hundreds of thousands, and perhaps millions, of pounds more than you need to over the course of your investing lifetime?

    Come on. It’s time to wake up the smell the coffee. This isn’t the 1980s any more. You can invest nowadays, in a broadly diversified, low-cost index fund, for less than a quarter of one per cent a year. Just think what you could do with all that money you’ll save.


    The original version of this article was published on the Fair Return blog.


    Picture: Yutacar via Unsplash