Guest Blogger: Stuart Alexander, Managing Director, Gemini Investment Management
The Investment Management industry has gone through many changes over the last 30 years or so and to be fair most of the changes have improved the general quality of the Funds proposition. Especially in the area of Distribution where we now see much better qualified advisors and highly effective fund allocators who actually know what they are doing….generally. I am not saying that all in the past were bad but some were definitely to be avoided and as an Investor myself there were times I would struggle to recommend firms to friends and family. Often because it wasn’t always clear what value they added and how they went about their process of allocating to Funds. Today with the likes of the Association of Professional Fund Investors (APFI) and the Chartered Institute for Securities and Investments (CISI) you have bodies that maintain high standards and ensure Fund selectors are aware of their obligations and duties. In addition many fund buyers hold the CFA which makes distributors’ lives quite challenging at times!
In recent years the Manufacturing side has also had significant change thrust upon it, invariably after some “scandal” or similar outcry from some bitter and enthusiastic politician. Slowly but surely the Fund Managers have had to deal with tougher and tougher controls on how they manage money and to a certain extent I support that. Fund Managers should always be accountable for how they manage money and Investors should have confidence that the Managers know what they are doing. The way Managers communicate this to their Investors and Potential Investors is now under some scrutiny and as an industry we are being asked to “dumb” down what we say to Investors.
In many walks of life we rely on the experts to deliver the service or product they manage and we rely on the message they give. Some of us will understand it because either we know it already due to experience or we have a particular interest in the subject. In other cases we won’t have any knowledge. Take a car – when the sales person says your BMW 530d has 8% more torque than the previous model and generates 398lLbs at 1750-3000 RPM, I for one look at them and say to myself “look knowingly and not stupid”! I haven’t a clue but it sounds good and 8% more must be good…..mustn’t it? The petrol heads amongst you are probably going puce at my ignorance and immediately understand what the jargon means but the vast majority will not but they will still buy the car – why? – Because they trust the brand, the reputation, it does what it is supposed to on the whole and because others have got one…… peer association.
So is it the same today in the Investment Management world ….of course not; however we as an industry are being asked to dumb down our investment propositions so that Investors can understand what they are buying. Now I am not against full disclosure but my concern is that as an industry we often hide behind the gobbledygook, the jargon and the legalese which turns Investors and the media cold. No wonder the Press love to have a go about charges. They assume we, as an industry, are hiding something when in fact there is transparency of costs etc. at every level; you just need to know where to look. I know we are all guilty of using acronyms and language that no one outside our industry understands and in many cases it can look like we are hiding our overall ignorance if we talk in a way that no one else understands. Many times in meetings I will ask the “emperor clothes” question or as many would see it…the stupid question. It is amazing how many Managers stumble over the most obvious aspect of what their product does and how it does it. The challenge is to learn how to get rid of the jargon and clearly articulate the product to all. Without the clarity regulators will simply say come back when your investors can understand it. Naturally the cry will go out…” our investors know what they are buying”. But are you sure and whilst they may tick a box to say they have understood I think we have an obligation to provide clear and concise documentation on all our Funds and Products. Maybe one day the Industry will be recognised with a KITE mark or an award from Plain English for the way we deal with our customers. You never know! Meanwhile recognise that the Regulator will jump on you from a great height if you do not KISS !!