Asset Management Needs ‘Paradigm Shift’
Laurence Mumford, chief operating officer at M&G Investments, said asset management needs a paradigm shift to provide investors with increased transparency and better value for money.
He spoke on a panel about the UK funds industry at the Swift Business Forum in London today. A poll at the conference found that Brexit is expected to have the biggest impact on UK asset management.
Mumford said: “It is disappointing that the poll found that Brexit will have most impact and investors will be least affected by change as it is the investor that pays our wages and should be at the top. The industry needs a paradigm shift to provide more transparency and better value for money.”
He continued that M&G invented the mutual fund in 1831 and the industry has not changed enough since that time as there is overcapacity throughout the asset management infrastructure from end to end. “If we don’t wake up someone else will force change,” added Mumford.
Jon Willis, chief commercial officer at fintech company Calastone, said on the panel that asset management is a slowly dying industry. The Calastone Transaction Network enables fully automated managed fund trading between participant fund managers and distributors, regardless of technology and geography and reached 200 million messages last month.
Willis said there is a current generation of investors who are used to paying too much for not enough while the new generation has much higher demands and will jump between brands and providers.
“The argument is not between active and passive but do you provide what it says on the tin and the return that is expected,” Willis added. “There is no other industry that has so many points between the manufacturer of the product and the consumer. Asset management is feeding too many mouths which is why fees are too high.”
The Financial Conduct Authority published its annual business plan for 2017/18 this month setting out its priorities and agenda for the coming year and the UK regulator said the market study on asset managers is due in the second quarter of this year. In the interim market study on asset management published last year the FCA found that price competition is weak in a number of areas and that the industry has seen sustained high profits over a number of years. In addition, investors are not always clear on a fund’s objective and performance is not always reported against an appropriate benchmark. The FCA’s proposed remedies included strengthening the duty of asset managers to act in the best interests of investors and introducing an all-in fee so that investors can clearly see what is being taken from the fund.
Katrina Sartorius, global head of FundsPlace, Euroclear’s fully automated investment funds service, said on the panel that asset management still relies on a lot of paper which requires heavy processing.
She said: “Robo-advisors have $140m of assets in UK but $75bn in the US and Deloitte has forecast that will each $7 trillion by 2025. This is the way of the future and platforms will be disintermediated as robo-advisors invest in straight-through processing.”
Willis predicted that over the next five to ten years the largest asset managers players will launch completely different business models as 90% of new money goes into the top 12% of funds. He added: “The biggest challenge in fund management is legacy of technology, people and practices.”
Mumford predicted there will be more online engagement and profit margins will change.
Sartorius added: “Technology will be a catalyst for change. The number of players will reduce and there will be some form of disintermediation.”
Advocacy group's expansion has exceeded the high expectations of Founder Seema Hingorani.
Conventional style investing led to index-like performance with higher fees.
Investors and directors said climate risk is already impacting their businesses.
The fund manager is publicly publishing climate ratings for about 1,000 companies.
Investor interest in ESG-integrated strategies continues to rise.