If asset managers are behaving like turkeys in the week before Christmas, there is a reason for that.
Wednesday will see the Financial Conduct Authority (FCA) publish the findings of an investigation into the sector, and many are expecting the City watchdog to shake up the cosy world of wealth management.
The industry’s ‘Get out of jail free’ card (not that big hitters in the City ever seem to end up in jail) may be the uncertainty caused by the Brexit vote over Britain’s important financial services sector, with Frankfurt, Paris and Zurich all keen to lure business away from London & Edinburgh by playing the Brexit card.
The FCA has already published an interim report, so we know the main themes are likely to be greater transparency relating to charges; greater competition in both the actively managed and passive (i.e. index tracking) unit trusts sectors; more rigorous performance benchmarking; easier movement of client funds across different asset classes.
The savings industry more important than ever in the era of defined contribution pensions
Tom McPhail, head of Policy at retail-focused wealth management giant Hargreaves Lansdown, is obviously not in the business of calling for the FCA to sharpen its hatchet too keenly, but he does recognise the need for the industry to improve.
“As with any industry, asset management has pockets of both exceptional and poor value. Many of the products that fall into the latter category are older and now look outdated. It has to be as easy as possible for investors to vote with their feet and for investment wealth to move from poor value to good,” McPhail said.
“Technology has a significant role to play in this process, with investors increasingly accessing data and wealth management tools via mobile devices. It is also important investors have access to good quality information, help and guidance: the Financial Advice Market Review still has an important role to play in this regard,” he suggested.
The tricky part is protecting investors without overburdening them with too much small print and confusing them with jargon.
“The savings ratio is at its lowest level since the 1960s and cash rates are going backwards in real terms, so encouraging engagement with investment has a big role to play in consumers’ long term financial health,” McPhail said.
“The challenge the FCA is addressing in its study is how the investment industry delivers value for money to its customers. Charges are of course an important factor, as are appropriate contribution levels, fund performance, and tax efficiency,” he continued.
Where are the customers' yachts?
In a world where the defined benefit, or final salary, pension scheme is going the way of the bustle, it is more important than ever to get the regulations right for the savings industry.
As for fund managers, they are already preparing for a new set of regulations due to come in early next year in the form of the second Markets in Financial Instruments directive, commonly referred to as MiFID II.
Sympathy may be in short supply, however, for an industry that has traditionally been regarded as being very good at making money – for themselves, if not always for their clients?
Aside from the FCA’s report, it is looking like it might be relatively quiet in terms of company results announcements.
Consumer electronics giant Dixons Carphone should be the main event.
Full-year results should confirm the merged electricals and mobile phones retailer’s bullish trading update released on May 24.
Back then the FTSE 250-listed group - which owns Currys, PC World and Carphone Warehouse in the UK – narrowed its headline full-year pre-tax profit guidance to £485mln-£490mln, against a previous forecast of £475mln-£495mln.
Dixons Carphone has proved resilient despite worries over the confidence of UK consumers in the wake of last year’s Brexit vote, with a drop in the pound stoking increases in inflation and talk of a possible UK interest rate hike later this year.
As George Salmon, equity analyst at Hargreaves Lansdown, pointed out at the time of the trading update: “The demise of high street rivals like Comet and Phones4u means there isn’t a great deal of ‘real world’ competition for Dixons Carphone’s ‘3-in-1’ mobile, computing and white goods stores.
“Add in the fact that tech is an increasingly important part of our daily lives, and it’s easy to see the upside.”
“However,” he added, “the danger is from the less visible challenge posed by online competitors such as the mighty Amazon. Sterling’s weakness, which raises the cost of importing electricals, is providing another headwind.”
Earlier this month, Dixons Carphone and US mobile network Sprint Corp (NYSE:S) announced that were ending their retail joint venture because of the “changing US mobile market landscape”.