Date: 19.04.16 Category: Working For Change
Stakeholders also express concerns that the profession is too focused on promoting products rather than strategies appropriate to clients’ needs and that it values complexity ahead of clarity. It is hard to deny that investment managers have often focused on selling their products, rather than on how they might serve clients, but that is partly a function of the diversity of the client base; the same product might have different applications for different client groups. As it can be difficult for clients’ needs to be aggregated and articulated, it can be hard for the profession to respond other than by developing more products in a search for demand.
It is also accepted that the profession is making progress on this issue. The development of multi-asset, target date and other outcome-based investment products is a clear response to the growing client demand for such structures. The engineering involved in a product or strategy may be complex, especially so in a highly competitive market, but just because what is ‘under the bonnet’ may be intricate does not mean that the profession should not be able to communicate the purpose of that product or strategy clearly and simply.
Clear, simple explanations are not easy to provide without running the risk of misrepresenting the potential outcome for clients, but the need for clear communication will only grow. In the past, defined benefit pension schemes held the bulk of UK institutionally invested assets. Scheme trustees, advised by their consultants, had a relatively clear understanding of the value their investment managers could provide and what those managers were doing on their behalf. Institutional clients report that they have effective working relationships with investment managers. This is less often the case in the retail market where the end client is likely to be several steps removed from the investment manager, intermediated by combinations of advisers and platforms.
Today, investment management is becoming more retail in nature because of the growth of defined contribution schemes. While most DC scheme members will opt for a default option and rely on the members of their Independent Governance Committee for investment decisions, there will in future be greater retail involvement in investment decision-making. While platforms, ratings providers and advisers will be able to communicate much of the value that can be delivered by investment managers, the investment profession will need to build the capacity to explain itself better to retail clients than it has in the past.
Read more in our report.