Finally the truth is out

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The gloves came off this week during an ‘interesting’ discussion I had with a fund manager about the sheer number of new fund launches.

Instead of nodding sagely as I had a bit of a moan, they blatantly asked why they should be bothered?

Now call me a grumpy old woman, but I found that reaction rather disturbing.

The fund manager literally did not even pretend to care what I or my clients thought. Well, each to their own I suppose, but I admit that I found their approach infuriating.

Basically their view was that, even when a fund performs badly, investors stay loyal. (blog continues below)

 

So, as they helpfully pointed out to me, with a fund of just £50m, they can make £250,000 and if the fund was a more typical £500m in size, that’s a neat £2.5m reward for poor management, so why should they bother? They can limit their expenses and still make money. The fund manager honestly felt that they were still rewarded for bad performance and churning out new funds, therefore there is no incentive to change their approach.

So the oversupply of funds is down to investors (and advisers) being too loyal and fund managers not giving a stuff about their customers? Really?

Is that the sort of investment environment we want?

 

Philippa Gee is managing director of Philippa Gee Wealth Management.

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Readers' comments (7)

  • I have been complaining to the FSA, life companies & fund management companies for many years that the charging structure on funds and the pay to sales and fund managers in fund management companies has been totally out of proportion. But as you say and they have now admitted, they don't care, and interestingly nor do the FSA who are supposed to be protecting the consumer. The FSA are getting rid of IFA's and commission but the biggest rip off are the fund management charges by the investment houses and their banking friends who sell them to all & sundry regardless of risk or affordability.
    Think about how the overall funds under management have increased exponentially in the last 30 years, while the cost of administering the same, notwithstanding the increase in regulation, has decreased dramatically thanks to the internet and IT. But charges have increased from what was 0.75% pa max to the ludicrous TERs we have now of +/- 2%pa.

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  • Been saying this for years. Hardly a surprise as they all went to the same schools as the bankers & look at that culture!

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  • What I don't understand is why this should be seen as a "surprise" or "interesting" to say the least! This is the way fund management has always been run and it would take a relatively naive advisor not to see this.

    Fund managers use new fund issues either to get their name in the press or to bury the bad performance of an old fund which they can now merge into the new fund.

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  • When you are paid by assets under management the priority is to grow assets - by launching new "exciting" products rather than by looking after existing funds (market returns are the biggest driver of asset growth other than sales).

    This means the fund industry is really just a sales and marketing machine, and a completely sensible strategy (given the fact that the customer pays all the costs) is to launch lots of funds, keep the good ones and merge or close the bad ones. Then just recycle the assets and launch more funds.

    2500 funds launched over the last ten years, and about 2400 merged or closed to be precise.

    And the surprise is....?

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  • Well done Philippa! Useful article for the recently retired non-expert, even if others take it for granted. Go forth and clone more grumpy old women. Now, about those online Financial Advisors that heavily market new funds in their monthly literature despite the manager having virtually no experience in this new market (for them)....?

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  • The creation of new funds is the key factor in allowing the fund management industry to maintain the illusion of performance and hence value-added. If the regulator imposed a finite limit on the amount of funds that were allowed to set up it would quickly become obvious to all just what a rip-off these guys are. I think you're being rather unkind to bankers to compare them to this bunch of shysters

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  • Sadly, as others have stated, this is not surprising information and what many of us know and consider (and yes I increasingly feel like Victor Meldrew) when putting investments together for clients. This is also an argument presumably for good advisers and a warning to those seeking to make their fortune on the back of an inbox full of temptation. I imagine that most mornings, a collective "I don't believe it" is shouted at computers as emails are opened with "new opportunities" that promise the earth right before the delete/add to spam button is hit..(like most advisers I probably get at least 30 such emails a week) ... caveat emptor.. keep up the good work though Philippa.

    BTW... why are you still permitting anonymous posts?

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