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AIM High: Assessment of Value year two: The good, the bad and the ugly · Two in Twenty

• 0:02
  SPEAKER_00: Hello and welcome to another episode of Aim High.
• 0:05
  SPEAKER_00: My name is Twink Field.
• 0:06
  SPEAKER_00: I'm the host of these podcasts, which are specifically for marketers and investment management.
• 0:12
  SPEAKER_00: Today we're going to be talking about the assessment of value.
• 0:16
  SPEAKER_00: These are reports that the FCA regulator required investment managers to make on an annual basis, assessing the value that they provide for investors.
• 0:26
  SPEAKER_00: So we have some investors with us, we have some investment managers in the form of spare capital.
• 0:32
  SPEAKER_00: I'm so glad that both John and David have joined us.
• 0:35
  SPEAKER_00: Sparrow Capital Cap-Free model portfolios and evidence-based investor.
• 0:44
  SPEAKER_00: Joining them is Esther Armstrong, who is a marketing consultant that I know well.
• 0:49
  SPEAKER_00: I work with her at Mike Barbara, and she also works with Cornerstone as a consultant as well.
• 0:54
  SPEAKER_00: So I'll go straight to my conversation with them.
• 0:59
  SPEAKER_00: So thank you so much, John, David, Esther, for joining me today to talk about the assessment of value.
• 1:23
  SPEAKER_00: So thank you all for joining me.
• 1:25
  SPEAKER_00: Perhaps first I can come to you, John and David, to introduce ourselves and then Esther, and we'll get stuck into the questions.
• 1:32
  SPEAKER_02: So yes, good afternoon, everybody.
• 1:34
  SPEAKER_02: My name is John Bennett.
• 1:36
  SPEAKER_02: I am uh head of advisor proposition at Sparrows Capital, which uh basically encompasses a range of capped fee model portfolios that we launched with factor and ESG responsible investment processes to challenge the dominant asset-based charging in the DFM sector.
• 2:00
  SPEAKER_02: Um prior to Sparrows, I spent some time in the robo advice world.
• 2:05
  SPEAKER_02: Um prior to that in uh index construction and prior to that in uh UBS.
• 2:11
  SPEAKER_02: So that's a little bit of the journey.
• 2:14
  SPEAKER_00: Super.
• 2:15
  SPEAKER_00: Thank you, David.
• 2:16
  SPEAKER_03: Hello, and uh thanks for inviting me.
• 2:19
  SPEAKER_03: Uh I'm David Ogden, I'm head of compliance at Sparrows Capital.
• 2:22
  SPEAKER_03: Joined the firm in September 2020.
• 2:24
  SPEAKER_03: Uh so I'm yet to actually meet anyone I work with, but uh those are our times.
• 2:29
  SPEAKER_03: Um I've been in regulation for just over 29 years.
• 2:31
  SPEAKER_03: I think that landmark went past last week.
• 2:34
  SPEAKER_03: Uh having started in this particular world in 1992 with IMRO, one of the SCA's predecessors.
• 2:40
  SPEAKER_03: Uh spent three years there, and since then I've been in compliance in the industry, um, always in investment management, both institutional and retail, but much more so in retail, take it for the last 14, 15 years.
• 2:50
  SPEAKER_03: Uh, very pleased to be with Sparrows today.
• 2:54
  SPEAKER_00: Super.
• 2:54
  SPEAKER_00: Thank you.
• 2:56
  SPEAKER_00: Esther, Nancy.
• 2:57
  SPEAKER_01: Hello everyone.
• 2:58
  SPEAKER_01: Thanks for having me on Twink.
• 3:00
  SPEAKER_01: Um, I am a marketing consultant both for White Marble Marketing and um more in the media side for cornerstone communications.
• 3:11
  SPEAKER_01: I have worked in financial services for around 12 years now, um, first as a journalist, then latterly as a content specialist and strategist for BMY Melon Investment Management.
• 3:24
  SPEAKER_01: So I've now been consulting for around a year.
• 3:27
  SPEAKER_01: Brilliant.
• 3:28
  SPEAKER_00: Thank you.
• 3:29
  SPEAKER_00: So maybe just to kind of get us all, including our listeners, all in the in the same place, we could just do a bit of a background check on assessment of value, so where did it come from and why?
• 3:40
  SPEAKER_00: Maybe, David, you can just give us a bit of a run-through on that front.
• 3:44
  SPEAKER_03: Yeah, sure.
• 3:44
  SPEAKER_03: Um, I think that there's a very clear perception.
• 3:46
  SPEAKER_03: I think it's a very hard thing to argue with that um fund management, particularly for retail clients who have limited negotiating power, doesn't really provide great value for money.
• 3:56
  SPEAKER_03: Um, and perhaps more importantly than that, it's very hard to assess whether anyone is getting great value for money.
• 4:01
  SPEAKER_03: So at the end of the day, it's very clear that what investors really want is for their funds to perform well, but that's not the be-all and end all, um, and it's a very hard thing to judge up front.
• 4:10
  SPEAKER_03: So I think what the FCO is trying to do is to get fund boards in particular to do a little bit of naval gazing and really ask themselves some difficult questions to say, are we producing the right thing for our clients?
• 4:22
  SPEAKER_03: Are these good things to invest in for the long term?
• 4:25
  SPEAKER_03: Uh, which is very important.
• 4:26
  SPEAKER_03: Long term really really matters much more so than uh short term.
• 4:30
  SPEAKER_03: Uh, and just to really understand that fund boards are critically analytical, and to that reason they've brought in a concept of the independent non-executives on fund boards, which is a very difficult concept.
• 4:41
  SPEAKER_03: How independent is someone sitting around a table going to be?
• 4:44
  SPEAKER_03: Uh, no doubt taking a fee for that, which is entirely logical.
• 4:48
  SPEAKER_03: Um, but the key thing the FCA is looking at is governance.
• 4:51
  SPEAKER_03: So, will will firms really critically assess what they're doing for their investors?
• 4:57
  SPEAKER_03: Uh, and if they can conclude that they're not doing everything they should be doing, will they try to change it?
• 5:01
  SPEAKER_03: So that's a very unspecific summary of the objective.
• 5:05
  SPEAKER_03: But I think having Googled many, many hours, I was going to say, it certainly seemed that way to um identify a very clear objective.
• 5:12
  SPEAKER_03: There really isn't one from the SCA.
• 5:14
  SPEAKER_03: Um, this is quite fair, and I guess deliberately so, because if you're a little bit vague, it encourages people to think a little bit more widely than a very clearly defined rule.
• 5:22
  SPEAKER_03: So the the key thing is to get fund groups to assess themselves and really ask themselves some difficult questions.
• 5:30
  SPEAKER_00: Does that not get into the realm of asset managers sort of marking their own homework?
• 5:36
  SPEAKER_00: I mean, what's that been like, John, as you sort of um kind of reviewed the year that's been?
• 5:41
  SPEAKER_00: Was it quite diverse in terms of how the asset managers embraced this?
• 5:44
  SPEAKER_02: Yeah, I mean that's that's a criticism that's been levelled actually quite widely, um, along with uh Turkey's voting for Christmas, perhaps as another analogy.
• 5:53
  SPEAKER_02: Um and yeah, I think one of the issues is if you ask um an audience about to comment on their own failings, um, you are opening up uh a bit of a Pandora's box in the sense that we all know, and it's been quite widely reported, that there was no um prescribed format for this.
• 6:10
  SPEAKER_02: So it's very easy to present your uh picture in a in a light as favorably as you possibly could.
• 6:16
  SPEAKER_02: And I think that's one of the uh major criticisms that has been leveled at the whole operation.
• 6:22
  SPEAKER_02: And you know, one has to think um about the processes that went into developing this.
• 6:27
  SPEAKER_02: And when you ask for data, especially, this is all about value.
• 6:32
  SPEAKER_02: So we're talking about cost and performance, which is measurable in numbers and service, which is clearly not, um, it's very simple to uh prescribe um a format that that is hard to move away from.
• 6:45
  SPEAKER_02: And that that has not happened.
• 6:47
  SPEAKER_02: So I think that um given that the objective was to put these in front of end consumers, um, it's a bit of a mess.
• 6:57
  SPEAKER_02: It's very, very hard for them to actually compare and contrast.
• 7:01
  SPEAKER_02: Um, and I suppose we also have to remember that the whole uh process is backward looking, as it has to be.
• 7:07
  SPEAKER_02: Um so really, um, how are investors, how are the end users going to look at these reports if they can find them and assess whether they've actually had value historically from a particular um fund relationship?
• 7:22
  SPEAKER_02: So that that's that's really the the big issue for me.
• 7:25
  SPEAKER_02: Um, and I think when we come to talk about how it can be um improved going forward, there are certainly lessons to be learned there.
• 7:33
  SPEAKER_02: Um and I do personally, I see this as a it started a year ago and it's basically got to improve substantially to be um to fulfill its promise, certainly.
• 7:42
  SPEAKER_02: Um one of the issues I have looked at, I haven't got a current figure, but I think if you the the big sort of elephant in the room in all of this is the uh legacy share classes that the industry has basically failed to get rid of, which were paying trail commissions um and still uh you know charging really quite excessive fees.
• 8:05
  SPEAKER_02: And I think back in 2019 the uh the number was 184 billion of assets.
• 8:12
  SPEAKER_02: Now, I don't have a current number for that, but if we want the assessments of value to work and to have an impact, we want to see that number going to zero.
• 8:22
  SPEAKER_02: Obviously, not practically, but to fall very, very rapidly.
• 8:26
  SPEAKER_03: I think I think John makes the very clear point though.
• 8:28
  SPEAKER_03: I mean, you can't possibly get value from a rebate share um paying class when that's no longer permissible.
• 8:35
  SPEAKER_03: So this is a very easy question to ask, I'm not entirely sure what the answer is, but where that money's actually going, because people are still paying for something that they're definitively not getting.
• 8:43
  SPEAKER_03: Um that's that's really um possibly the antithesis of value.
• 8:47
  SPEAKER_03: Well, almost in a sort of suck it in the C period now, because I think I don't think anyone, and so we we've mentioned before about the lack of clarity of the objective, so no one really knew what this was for.
• 8:57
  SPEAKER_03: There's some fairly obvious um considerations in there.
• 9:00
  SPEAKER_03: But if we didn't know it was for, it's really quite impossible to judge whether it succeeded.
• 9:04
  SPEAKER_03: And one of the reasons, uh, as John has alluded to, that it hasn't succeeded yet, is that there is a range of formats.
• 9:10
  SPEAKER_03: Uh, I was looking at some last week.
• 9:12
  SPEAKER_03: Um, some were red, amber-green rated, some had their own star ratings, some were purely narrative.
• 9:18
  SPEAKER_03: So we're really asking end investors and advisors and fund selectors to compare things which are really comparable with like apples and pears or that sort of concept.
• 9:29
  SPEAKER_03: And that makes things very difficult because a lot of these things run to dozens and dozens of pages.
• 9:34
  SPEAKER_03: Uh and if you're seriously going to try and choose between, I don't know, 10 funds that might have quite similar objectives, and if there's a lot more than that, if you really think you're going to read those papers before making an investment decision every time, that's someone with a lot of time on their hands.
• 9:48
  SPEAKER_03: And I don't think too many people fall into that category.
• 9:51
  SPEAKER_03: So um, whether these are aimed at end investors or financial advisors or anybody else in the industry, there's there's a real question to ask in who has got the time and the inclination to go through these in enough detail to make sensible conclusions.
• 10:04
  SPEAKER_02: I also think actually it might have been quite useful, or but maybe quite useful looking ahead, perhaps, for um you know the industry or the FCA to say, well, look what are the what are the objectives of this exercise?
• 10:15
  SPEAKER_02: Is it to reduce substantially the assets in legacy share class classes?
• 10:22
  SPEAKER_02: Is it to narrow or just remove the um gap between institutional and retail share pricing?
• 10:29
  SPEAKER_02: There's another issue that where retail investors are being very poorly served, now that I mean the vast majority of these trades are aggregated on platforms.
• 10:39
  SPEAKER_02: So this institutional retail divide in cost is is harder and harder to justify.
• 10:45
  SPEAKER_02: So there are plenty of very good and very worthy objectives, but they aren't sort of signposted terribly clearly.
• 10:52
  SPEAKER_02: Um, so that that's another issue as far as I'm concerned.
• 10:55
  SPEAKER_00: So given the kind of inconsistencies that we've seen uh since the start of people producing these reports, Esther, you know, maybe you can just sort of comment on you know maybe from the being in-house as an asset manager, you know, kind of the rumblings and the and sort of how how they maybe have responded to this FA FCA requirement and and and how they may have learned some lessons.
• 11:17
  SPEAKER_01: Certainly.
• 11:18
  SPEAKER_01: I think my impression is, and I wasn't in-house at the time when the first iteration of these was released, but if past experience is anything to go by, I would say that it's one of those examples where the regulation comes in, the deadline is set, and generally it takes people a bit of time to get their kind of heads together on what this really means for the business and how best to go about doing this first iteration.
• 11:48
  SPEAKER_01: Um, and generally it's then a race to the finish line to actually release the first report by the deadline.
• 11:57
  SPEAKER_01: So my impression is that there will be improvements this year.
• 12:02
  SPEAKER_01: Um, and maybe some companies will have felt a bit more comfortable having seen what came out from their peers and throughout the industry, to then take a bit of time, take stock, and improve on what they did last year.
• 12:19
  SPEAKER_01: And hopefully I'm interested to see what that looks like.
• 12:24
  SPEAKER_02: And again, I'm looking down the positive end of the telescope here.
• 12:28
  SPEAKER_02: Um, you know, one can only imagine the tension, if you like, in the in the fund board saying on the first iteration of assessments of value, you know, what and how much are we going to say?
• 12:38
  SPEAKER_02: Because there's no evidence, there's no peer group stuff out there yet.
• 12:41
  SPEAKER_02: So you're you're going into a sort of dark place.
• 12:44
  SPEAKER_02: And I was I was very interested, and I'm I'm I'm, as I said, looking down the positive end of the telescope here, to see that you know, Hargreaves um Lansdown, one of the biggest, if not the biggest, retail platform out there, on their first round of assessments of value, clearly felt that it was not um the thing to do to mention Woodford once.
• 13:06
  SPEAKER_02: Now, one of the one of the parts of his equation is performance.
• 13:10
  SPEAKER_02: And clearly, it's clear to everybody that there was an impact there.
• 13:14
  SPEAKER_02: But now you come to look at their second um round of reports, um, and he's mentioned four times.
• 13:21
  SPEAKER_02: So putting a positive spin on that, obviously they've they've they're they've they've seen what's come out, but it's the right thing to do.
• 13:28
  SPEAKER_02: Not that anyone wasn't aware of it, unless you were on another planet.
• 13:32
  SPEAKER_02: Um, so that to me is is an improvement in sort of voluntary openness, if you like.
• 13:38
  SPEAKER_02: So it's a good thing.
• 13:39
  SPEAKER_02: Um I mentioned the um legacy share classes.
• 13:43
  SPEAKER_02: There are things, there are markers we can look at to measure the impact of this.
• 13:48
  SPEAKER_02: So is there a reduction in legacy assets?
• 13:51
  SPEAKER_02: Is there a narrowing of the gap between institutional and retail pricing?
• 13:56
  SPEAKER_02: That's these are all easily measurable.
• 13:58
  SPEAKER_02: But again, if you want to compare the equation of value, so how much do you get per unit of cost?
• 14:06
  SPEAKER_02: That needs to be a bit more formalized and prescriptive, in my view.
• 14:09
  SPEAKER_01: One thing I would say, John, as well, is not necessarily just the tension within the fund boards, but also the tension within the business itself.
• 14:18
  SPEAKER_01: So you've suddenly got an entire marketing function that's having to ramp up to produce these assessment of value reports for every fund that they run.
• 14:29
  SPEAKER_01: And that's on top of what they already produce.
• 14:31
  SPEAKER_01: So whether that's kids, prospectuses, um, you know, fact sheets, monthly commentaries, quarterly commentaries.
• 14:39
  SPEAKER_01: And so, really, in what are quite resource-constrained and lean departments, often, they've now thrown on a whole new requirement.
• 14:49
  SPEAKER_01: And I think there's valid questions to be asked there in terms of how do you harmonize some of these requirements for end reporting to clients in order to make it still very relevant and useful for the end client, but also maybe a bit less onerous on the fund groups and the marketing departments.
• 15:11
  SPEAKER_03: Yeah, it's interesting on there because the I think the most um consistent format of anything I've ever seen is the kids, that there is no scope whatsoever to vary what's on there.
• 15:22
  SPEAKER_03: It's quite easy to criticize the kid and say the performance ratings perhaps are a little bit of a blunt tool, but they're certainly comparable in to some degree, uh, to a reasonable degree.
• 15:32
  SPEAKER_03: Uh, and it is very, very hard to compare um value assessment reports when they're all different, um, and it which doesn't make me wonder, and I'm sure you're absolutely right, uh Esther, that there are constraints in every department, um, not just for management but marketing and even compliance sometimes, although some people may disagree, uh, there's not always enough resources.
• 15:51
  SPEAKER_03: Um, but so for these departments to manage to publish documents that in some cases run to 70 or 80 pages, suggest there was plenty of resource thrown at it.
• 16:00
  SPEAKER_03: Um, but I do see that some of the ones I've looked at, some of the simpler ones, are rather shorter.
• 16:05
  SPEAKER_03: And I just wonder whether there's a comparison to be made between how long things are and how good the conclusions are.
• 16:12
  SPEAKER_03: Possibly a little cynical, but um, in my line of work, that's a given, really.
• 16:16
  SPEAKER_02: Yeah, one has to wonder as well, I think we said earlier on, how many end investors are going to actually find these things and b read them?
• 16:27
  SPEAKER_00: That was going to be my other point.
• 16:28
  SPEAKER_00: Where is everybody posting it?
• 16:30
  SPEAKER_00: Is it alongside all the other hygiene documents that you may be looking for?
• 16:33
  SPEAKER_00: Is that kind of in terms of where the asset managers are hosting them?
• 16:37
  SPEAKER_00: Or as a consumer, are you having to um and use it?
• 16:41
  SPEAKER_00: Are you going everywhere to find it?
• 16:42
  SPEAKER_02: I think you have to be rather tenacious, I think was the word I read as a consumer to find these on uh asset manager websites because I think they're usually hosted on the wholesale or even institutional side.
• 16:54
  SPEAKER_02: And actually that that brings an interesting point, really, which is actually these assessment of value reports are probably quite useful to fund gatekeepers of all people.
• 17:05
  SPEAKER_02: Obviously, there's tons of other stuff they look at, but I suspect as these things get better and better, um, there are other participants in the industry who will find them very useful.
• 17:15
  SPEAKER_02: Um, so yeah, that's that's a sort of sideline, but uh they're not that easy, I suspect, to access for the retail investor.
• 17:23
  SPEAKER_03: Some of the ones I managed to find.
• 17:24
  SPEAKER_03: I did a little exercise last week.
• 17:26
  SPEAKER_03: Um I was trying to look at the well-known spot the dog survey.
• 17:30
  SPEAKER_03: Uh and worth certainly won't go into any names, but it did strike me that um the funds that featured in that uh particular hall of shame seem to be harder to find the detail than some of the um ones that perform quite well.
• 17:44
  SPEAKER_03: Uh again, I have to put my cynical head on here and wonder if there's a direct correlation between how hard things are to find and how good they are and how much people want me to read them.
• 17:52
  SPEAKER_03: Um some of the ones I found were actually in the compliance and legal section, which frankly not many people go to unless you absolutely have to.
• 18:00
  SPEAKER_03: Uh, I'm nothing if not self-aware.
• 18:01
  SPEAKER_03: I've written a lot of things ago in compliance and legal sections on websites in my time, and I don't think they've had the highest viewing figures of any of the uh materials available.
• 18:10
  SPEAKER_03: So to find things buried in that section didn't strike me as um terribly open and transparent, which I think is what we're what we're looking for.
• 18:17
  SPEAKER_00: And you know, actually a lot of what Esther and I talk about is the kind of the purpose behind any kind of content.
• 18:24
  SPEAKER_00: And I think almost the kind of the vagaries of those objectives from the beginning make it harder to really kind of get the kind of purpose well answered within a document, and then also know where it sits within the armory.
• 18:38
  SPEAKER_00: I don't know whether Esther, you can give the comment on that in terms of how multiple departments may think about that in terms of placement and consistency and content when trying to answer an answer a question that hasn't really been asked.
• 18:52
  SPEAKER_01: Well, one thing that occurred to me when David was talking about the length of some of these documents was that actually a kind of common misperception, I think, that people have is that the shorter something is, the easier it was to produce.
• 19:07
  SPEAKER_01: And often it's the other way around, that those longer documents you see are the ones that there's been much less time spent on.
• 19:16
  SPEAKER_01: And in many ways, they've been the content has been ripped from documents that already existed, cobbled together.
• 19:23
  SPEAKER_01: Um, perhaps it's information that was already in the report and accounts section of communications to um fund holders.
• 19:34
  SPEAKER_01: So for me, those that are of the longer length, that screams that those departments didn't spend an awful lot of time on making them do what they were supposed to do, and instead just took whatever they could from whatever arenas they could find the content.
• 19:51
  SPEAKER_01: Whereas those shorter versions that are doing a better job clearly communicating to the end investor.
• 19:58
  SPEAKER_01: And I know Vanguard is always held up as a kind of paragon of transparency, simplicity, uh, but that they are one of the companies that people have been praising around the assessment of value reports.
• 20:11
  SPEAKER_01: And I'm sure they put a bit of time and effort into coming up with a decent format.
• 20:16
  SPEAKER_00: Well, it's interesting, isn't it, when you have a kind of brand promise like that, how you have to take those principles into everything that you do, every client touch point.
• 20:24
  SPEAKER_00: Um, so I wonder, John Dave, it's great having you here in terms of both the kind of the um audience that we're kind of providing some of this information for as well as the sort of struggles that the asset manager themselves may have in delivering it.
• 20:38
  SPEAKER_00: Um my question, I guess, is then do you start to take a view on a brand, a business, when you are struggling to find that information on their website when you know, or or you do feel like it's been sort of obscured and kind of hidden away for whatever reason to make it purposefully, I think.
• 21:00
  SPEAKER_03: I I would I'd I'd certainly it's not the be-all and end all, and some things may happen by accident and say I don't want to be too cynical and say things have been hidden by designs.
• 21:08
  SPEAKER_03: I certainly don't know if that's the case.
• 21:10
  SPEAKER_03: But I think in any industry that which we're involved in, either as a customer or employee or whatever it might be, we like to find things that we're looking for easily, and particularly so in the world we're in now.
• 21:24
  SPEAKER_03: We don't want to be trolling through a website, looking through pages and pages of things, whether you know whether you're buying a new plug or you know, whatever it might be, any any basic consumer product.
• 21:33
  SPEAKER_03: You want things that are quick, easy to use, directly to the right place, and provide value.
• 21:38
  SPEAKER_03: Um, and yeah, we all there's a number of websites which all of us use day to day, I would imagine, and they're the ones that manage to make that straightforward.
• 21:46
  SPEAKER_03: Uh and really, why why should it be any different when people are making big decisions about their investments?
• 21:51
  SPEAKER_03: It should be even more straightforward to at least find the information you're looking for.
• 21:54
  SPEAKER_03: So, yeah, I have to be a little bit um in wonder as to why things are hard, hard to achieve when uh
• 22:02
  SPEAKER_02: And you do you do, of course, then get into the fascinating area of advised and non-advised investors.
• 22:09
  SPEAKER_02: So obviously, a great reason to go to a good independent advisor is that they will do all of this spade work, which I imagine is just endless for the client.
• 22:19
  SPEAKER_02: If you're going direct, and I read an interesting article um this morning just saying that COVID and the lockdown has produced this sort of sea of online direct investors, and guess what they're buying?
• 22:30
  SPEAKER_02: Cryptocurrencies.
• 22:32
  SPEAKER_02: So it's all a bit scary.
• 22:35
  SPEAKER_02: I think with the the direct um non-advised consumer, they I suspect they tend to be a little bit more tenacious about gathering information.
• 22:44
  SPEAKER_02: They probably do put the hours in to find it, unless they're in the crypto brigade, as I'll call them.
• 22:51
  SPEAKER_02: But the advised, you know, the going through a financial advisor, that is obviously part of that service there as well.
• 22:57
  SPEAKER_02: So you do want transparency, whether it comes from your direct efforts or or or through your advisor.
• 23:02
  SPEAKER_02: Um it's not always easy, as we know.
• 23:05
  SPEAKER_00: So, John, maybe just sticking with you, you know, I think it's quite telling that our industries had to have this sort of um mandate to demonstrate value.
• 23:14
  SPEAKER_00: Um, and um, you know, you've pointed to some areas where um, you know, we we hope that we'll see some of these legacy share classes and things like that being tidied up, some of the proliferation.
• 23:25
  SPEAKER_00: Kind of what other sort of general improvements for the kind of markets do you think we can sort of talk to and just reiterate?
• 23:31
  SPEAKER_02: I I think we there's no point saying if we could start it again, how do we do it?
• 23:34
  SPEAKER_02: Because we've started and we've done it, and there's a bit of a, let's be honest, a bit of a mess out there.
• 23:39
  SPEAKER_02: Um, so what what we want is is a consistency of approach.
• 23:43
  SPEAKER_02: So I think we need to form uh more prescriptive information gathering.
• 23:48
  SPEAKER_02: That's quite simple to do.
• 23:49
  SPEAKER_02: And I suspect it will make life easier, actually, to have a box filling.
• 23:53
  SPEAKER_02: This is the information we want, this is the format that we want it in.
• 23:57
  SPEAKER_02: The big uh the big uh question mark, the qualitative question mark, because part of your value equation is something called service.
• 24:04
  SPEAKER_02: Uh, and don't get me on that.
• 24:05
  SPEAKER_02: Um, that's nice and woolly, and you can escape to service if your performance isn't terribly good.
• 24:10
  SPEAKER_02: And and when we have seen people do that, obviously our service is fantastic, our customers love us, um, and and that that's a that's a story we've all read about.
• 24:17
  SPEAKER_02: Um, so I absolutely think that the the process needs simplifying.
• 24:23
  SPEAKER_02: Um, I think that there should also be some, it's an expression I hate, but I'm gonna use it anyway, uh, milestones in terms of what is happening to legacy share class exposure.
• 24:35
  SPEAKER_02: Is this being impacted?
• 24:37
  SPEAKER_02: What is happening to the cost differential between institutional and retail share classes?
• 24:42
  SPEAKER_02: Is this being these are easily measurable things?
• 24:45
  SPEAKER_02: And actually, I think as an industry, if we if we could say, look, this is what it was like in 2019 and this is what it's like in 2021, great, because there are plenty of people out there who would and and rightly accuse the industry of dragging its feet on legacy share classes in particular.
• 25:04
  SPEAKER_02: Um, so it's never too late to rectify these things.
• 25:08
  SPEAKER_02: So I think there are definitely improvements that can be made.
• 25:12
  SPEAKER_02: Um, you know, there wasn't much about responsible ESG investing, there wasn't much about liquidity, God forbid.
• 25:21
  SPEAKER_02: Um so that to me, as a firm, we are obsessive about liquidity.
• 25:26
  SPEAKER_02: And I think many investors are, of course, they only become worried about liquidity when it isn't there.
• 25:31
  SPEAKER_02: Um, so that's a huge that's an issue I did do think was uh missed.
• 25:35
  SPEAKER_00: Great point, yeah.
• 25:37
  SPEAKER_03: I I think there's one or two risks that people should be aware of on these that there are there are four quartiles, and someone will always be in the third and the fourth quartile.
• 25:46
  SPEAKER_03: Uh and if you are, then the chances of you getting a value assessment um that says we're offering great value is pretty poor.
• 25:53
  SPEAKER_03: But is there a risk, I wonder, that um and the FSA has been very clear uh about closet trackers providing very poor value because you're charging active fees but delivering passive investment.
• 26:04
  SPEAKER_03: Um is there a risk, I wonder, if someone is in the fourth quartile and they want to get out of it, they might be better off hugging an index for a while, and then they'll probably end up in the upper third, which won't attract any attention at all.
• 26:16
  SPEAKER_03: And of course, if people really are assessing the value of a fund on historic data and what other sorts of data is there, um they can't do that on uh we all know that past performance isn't a guide to the future.
• 26:27
  SPEAKER_03: I have to get that in every uh written or um oral uh presentation I make.
• 26:33
  SPEAKER_03: So are we in danger of judging things on criteria which the FCA has made it very clear we shouldn't judge things on?
• 26:39
  SPEAKER_03: That strikes me as quite a significant risk.
• 26:42
  SPEAKER_02: It's interesting, David.
• 26:43
  SPEAKER_02: You're absolutely right.
• 26:44
  SPEAKER_02: So a reason a retail investor picks up an assessment of value report and it's fantastic.
• 26:49
  SPEAKER_02: Now, is that the basis to buy a fund?
• 26:52
  SPEAKER_00: Yeah.
• 26:52
  SPEAKER_02: Uh I don't think so, because it's a rear view-looking document.
• 26:56
  SPEAKER_02: So, in a sense, to me, why I keep banging on about the legacy share class is it's actually saying you shouldn't have been there.
• 27:03
  SPEAKER_02: And you perhaps should think very carefully about staying in that fund.
• 27:07
  SPEAKER_02: Now, and we also know, by the way, obviously, when you look at past performance, that the next year's top performers don't all come from last year's top quartile, they come from all over the place.
• 27:18
  SPEAKER_02: So uh a fund which could have been perceived as bad value last year, might be quite good value next year.
• 27:25
  SPEAKER_02: We don't yet know.
• 27:26
  SPEAKER_00: And that goes back to the communication, doesn't it?
• 27:28
  SPEAKER_00: And the consistency and and the sort of conviction of style.
• 27:32
  SPEAKER_00: Sorry, yeah, sorry, that's a question.
• 27:34
  SPEAKER_01: I was just going to say that I think the mention you made of ESG and sustainability is an interesting one as well, John, because if we just think about the other kind of regulation that's out and around there with the sustainable finance disclosure regulation.
• 27:51
  SPEAKER_01: And that's obviously trying to get to a point of consistency about a taxonomy and a way of describing things so that investors have an ability to compare various different strategies or products.
• 28:06
  SPEAKER_01: So I wonder whether the assessment of value will evolve in that sense and we'll start to focus on a more consistent taxonomy.
• 28:14
  SPEAKER_01: I know the CFA had done a review of the first year's assessment of value reports as well, and there were kind of claims made around the percentages that hadn't even stated the objective of the fund, which is one of the clear requirements that the FCA asked for, and then likewise that hadn't contained the ongoing uh fee charges, uh the ongoing charge fee in the report either, both things that the FCA had asked.
• 28:46
  SPEAKER_01: So if fund houses aren't even delivering on things that the FCA have made a clear indication of needing, how can we expect them to deliver on kind of the over and above?
• 28:59
  SPEAKER_01: So yeah, I'm hoping that there will be clearer guidance from the FC, FCA that comes out, but when might we be able to expect that?
• 29:09
  SPEAKER_03: I'd sort of like to take the FCA side to some degree because being in compliance, I'm generally blamed for everything they do.
• 29:14
  SPEAKER_03: Wonder how they came down to me.
• 29:17
  SPEAKER_03: So I'm gonna I'm gonna stand up from a little while here.
• 29:19
  SPEAKER_03: I I think it's been a difficult thing for them to be specific about, um, because pinning down value is a difficult thing, and it's much easier in just about every other industry.
• 29:31
  SPEAKER_03: Because if you buy a new car or a light bulb or a fridge, you know if it's gonna do the job within five minutes of plugging it in or turning the key on, and you simply don't know that and never will know that with investments, because we all encourage people, and rightly so, to take the long view.
• 29:46
  SPEAKER_03: But the trouble is that, of course, if after five years, ten years, whatever, you've taken the long view and it's been absolutely terrible, um, then you've had terrible value, but there's very little you can do about it.
• 29:56
  SPEAKER_03: Um, so we are sort of um you know trying to nail plumage to a wall here.
• 30:00
  SPEAKER_03: Um, and I think where we started saying what they're really trying to encourage fund firms to do is to gaze into the naval a little bit and really ask themselves some hard questions.
• 30:09
  SPEAKER_03: Uh I can see that if this developed in the way that people might hope it would, of becoming clearer and more consistent and more concise and more precise, then it will have achieved something, but it's way too early for that to happen.
• 30:24
  SPEAKER_03: And you can compare it to quite a lot of other regulatory initiatives.
• 30:27
  SPEAKER_03: I'm not picking out treating customers fairly, however many years ago that was.
• 30:30
  SPEAKER_03: It seems like two years, which is probably nearer 10 or 12.
• 30:34
  SPEAKER_03: There is no way that anybody could argue with any of the objectives of that.
• 30:38
  SPEAKER_03: But pinning them down to actual data and proof is very, very difficult.
• 30:42
  SPEAKER_03: And this falls into the same category.
• 30:44
  SPEAKER_03: If you if you're trying to get fund managed to provide good value, no one can argue, but very few people can prove it.
• 30:52
  SPEAKER_03: But if general peer pressure over a period of time can force people to cut their margins, uh produce clearer information, explain risk better, all those sort of things, uh, then it will have achieved something, but it'll be very hard to pin it down to what it was that actually triggered that achievement.
• 31:08
  SPEAKER_03: That's it for me for standing up for the SCA.
• 31:10
  SPEAKER_00: Well no, I thought it was rather well done.
• 31:12
  SPEAKER_00: And I'm um conscious of time.
• 31:15
  SPEAKER_00: Um and actually, as you're sort of talking about how clearly we articulate uh some of these risks and um the kind of clarity in the signposting uh as well, kind of from a um website perspective.
• 31:29
  SPEAKER_00: I'm just conscious of our listeners and thinking about how marketers can really help with this transition with driving better behaviours and clarity and consistency.
• 31:38
  SPEAKER_00: Um and I wonder whether you had any kind of final tips for the marketers as they lean into projects like this and how they can challenge the business internally to sort of move forward with much more sort of client-centric hat on.
• 31:54
  SPEAKER_02: I mean, I think there's a to me, and and and some I'm sure some people would disagree with this, but yeah, cost is front and centre here.
• 32:01
  SPEAKER_02: Um performance is hugely important, the things you can measure easily.
• 32:05
  SPEAKER_02: Um, and we haven't really talked about where assessments of value might go next.
• 32:10
  SPEAKER_02: Um, and I am standing where I am, um, I would not be disappointed if the whole subject of model portfolios was looked at because what do people do with funds?
• 32:21
  SPEAKER_02: They don't live in isolation, they live in portfolios in the main.
• 32:25
  SPEAKER_02: So collectively looking at the value of a collection of funds is a look to me is a logical next step.
• 32:32
  SPEAKER_02: So, my my plea, if you like, to marketing departments would be put costs front and center.
• 32:39
  SPEAKER_02: Um, if you go onto our website, you will see it front and center because we're actually very proud of it.
• 32:43
  SPEAKER_02: I sometimes think the industry is a little bit ashamed of what it's charging and and and performance.
• 32:50
  SPEAKER_02: So have that right at the front and make these things easier to get hold of.
• 32:53
  SPEAKER_02: Um, I do wonder, again, I do wonder how many end users are going to actually read them.
• 32:59
  SPEAKER_02: But the it they will be useful to some sectors of the industry.
• 33:02
  SPEAKER_02: Um, but I suspect it will be professionals rather than end investors.
• 33:07
  SPEAKER_03: I think I'd say think of it as a client, because all of us are financial client consumers in one form or another.
• 33:13
  SPEAKER_03: The vast majority of us have got investments in some sort of funds.
• 33:16
  SPEAKER_03: Do we find it easy?
• 33:17
  SPEAKER_03: I suspect not.
• 33:19
  SPEAKER_03: Um, I hesitate to use the word focus group because that's um a horrible thing, which I'm quite convinced by.
• 33:25
  SPEAKER_03: But if you have to try and look at things from the point of view of a consumer, not from the point of view of the firm, either producing a marketing document or trying to justify itself, um, I think that might become slightly simpler.
• 33:36
  SPEAKER_03: So, what would a client actually want or an investor look for?
• 33:39
  SPEAKER_03: That's uh I'm not sure that's been known to use John's phrase front and center throughout the process.
• 33:44
  SPEAKER_00: Yeah, thank you.
• 33:45
  SPEAKER_00: Esther, final words to you.
• 33:47
  SPEAKER_01: Well, I was just going to pick up on the um treating customers fairly point, and I agree with David, you know, the element of that is front and center is the clear, uh fair, clear, and not misleading.
• 34:01
  SPEAKER_01: And that's really what we need assessment of value to be an extension of.
• 34:06
  SPEAKER_01: So as a result of that, I then sometimes wonder, and not having a dig at compliance here, David, but um I can take it.
• 34:16
  SPEAKER_01: Clear, fair, and not misleading often translates to uh a page or two of disclosure at the end of a document.
• 34:24
  SPEAKER_01: Um, and that's for me, uh, as a result of not taking enough time and care in making the actual document itself clearer and so using the disclosure as a way to explain it.
• 34:38
  SPEAKER_01: Um so I think bringing down that length that we've talked about, um talking to the client, as David said, and putting the key things that a client would want to be communicated around at the beginning and at the top, um which John has talked about.
• 34:58
  SPEAKER_01: So the cost and the performance and what to expect as a client who is invested in this fund.
• 35:05
  SPEAKER_00: Brilliant.
• 35:06
  SPEAKER_00: Thank you all so much for your thoughts on this.
• 35:08
  SPEAKER_00: It's been fascinating.
• 35:10
  SPEAKER_00: And I feel like we need another round once we kind of see how everybody does cope with the year two, and hopefully we do see some progression and um the FCA coming out with a bit more uh kind of focus and um giving everybody that sort of taxonomy or structure that can drive some consistency.
• 35:26
  SPEAKER_00: Um, but very, very many thanks to all of you.
• 35:29
  SPEAKER_03: Thank you for having me.
• 35:31
  SPEAKER_01: Thank you.