Is the current focus on fees obscuring the importance of meeting investor objectives? AH


Is the current focus on fees obscuring the importance of meeting investor objectives?

In spite of the enormous consumer apathy that has traditionally been a feature of the UK savings and pensions market place, there now seems to be some pressure building for change.

Fees and transparency have obviously been a particular focus recently, with industry participants, academic studies and the regulator shining a spotlight on this area. In recent weeks various studies have claimed that fees over the longer term can be as important a driver of return as asset allocation, regulators have found failings of transparency and fees at asset managers and the topic of rising asset manager pay has begun to surface in the press.

The industry overall has made various responses to the issue, cutting costs and providing lower cost funds and various flavours of ETFs in order to give investors better visibility, value for money and access to risk or strategies that might previously only have been available through higher cost active funds.

One approach of note is a firm called Motif (currently only US focussed), which provides low cost access to various investment ideas that would certainly have been the preserve of active management in previous times. The offering might be paraphrased as a kind of “build your own ETF” or way of constructing your own alternative beta fund (whatever your definition of alternative beta might be).

Motif's innovation is refreshing and the idea definitely interesting but one has to wonder if it will be appreciated by the majority of retail investors. Particularly in the current market, with rates near zero and a popular press consensus that equities are fairly priced, there seems to be a great deal of fear amongst retail investors of being caught in another brutal swing to the downside. Many of these investors are simply looking for a straightforward product that will give a reasonable level of return without exposing them to yet another major crash.

While lower costs and better transparency should be of benefit to the consumer, this is not the full story. There is a danger that the industry could cut costs, increase transparency and provide ever more sophisticated and accessible investment tools but still fail to meet the needs of retail investors.

Now that would be unfortunate.

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Andy Hope

Andy is an experienced consultant in investment management, change and risk management. He has over 20 years experience across a range of projects including operating model design, leading large asset pricing and derivative structuring teams, system selection and enterprise architecture.

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