It will doubtless barely register on the Richter scale for most investors, but this has been a seismic week for the UK fund industry.
First, two of the country’s biggest asset managers, Schroders and M&G, announced they were leaving the Investment Association, the industry trade body. Then, apparently fearful that other firms would follow, the IA’s board voted to sack its chief executive Daniel Godfrey.
Throughout his three-year tenure, there have been growing concerns among members that Godfrey was too consumer-friendly on issues such as fee transparency. He recently introduced a “statement of principles” in which asset managers were asked to promise to put clients’ interests first; at the last count, only 25 out of more than 200 IA members had signed up.
These latest developments are not exactly surprising. The IA (formerly the IMA) is, after all, a trade body. Godfrey wasn’t being paid £530,000 a year to lecture IA members about principles. But the crisis has underlined the total disconnect between the major fund houses and the consumers they are meant to serve.
The active fund industry is hugely powerful and exerts more political influence than probably any other. It also has a whole support industry in tow — stock brokers, fund platforms, advisers and consultants, all of whom have built their business models on flogging grossly over-priced products that consistently fail to outperform the market.
The sector can also rely on a largely acquiescent financial media that’s effectively funded by the advertising revenue that asset managers provide. After all, with very little else to say, what do you fill all those pages or that air time with, other than endless comments from industry “experts” about the ups and downs of the market or their latest share and fund tips?
Yet this is also an industry that has been found out, that is living on borrowed time. Increasingly investors are learning what academics have been telling us for more than half a century, that active fund management is a negative-sum game that the vast majority of us would do best to avoid. The industry needs to change to survive.
This, at least, was something Daniel Godfrey understood. When, for example, I asked a number of senior industry figures to be interviewed for my documentary How to Win the Loser’s Game, he was the only one who agreed.
Whoever Godfrey’s long-term successor turns out to be, we shouldn’t expect too much of them. Their job won’t be to encourage change, but to resist it. It’s to the regulator, the Financial Conduct Authority, that consumers must look for protection.
The FCA, incidentally, has also recently parted company with its chief executive. His offence? Being too consumer-friendly. Funny that.