The asset management industry must accelerate its efforts to become fully transparent on fees and charges if it wants to better engage consumers, experts have warned.
SCM founder Gina Miller, Hermes Investment Management chief executive Saker Nusseibeh and former Investment Association boss Daniel Godfrey said transparency was the backbone of consumer trust and was needed to help spur interest in saving and investing.
Speaking at the Morningstar conference in London on 11 May, Miller said the regulator was wrong not to mandate fee transparency in its implementation of European rules under MiFID II and should be doing more to pressure the industry to become transparent on charges.
She said at present in order for advisers to ascertain the cost of an investment they had to look back over the last three years of the fund, smooth it out and follow it every month.
However, she claimed it would still be difficult to get an idea of what the cost will be in the future.
The issue becomes trickier when platforms are involved. Miller said: "Advisers and platforms as distribution tools are important. We need to get to transparency at each of these levels because then consumers have a [true choice]."
However, Miller said cost was important but not the only thing advisers should be focusing on, they had to look at it in the context of risk and reward.
She said the reality was platform charges were not just about price but service levels. "It's got to be about value and trust," she said.
Nusseibeh agreed fees had to be "clear, capped and given in advance".
He said creating trust in the industry relied on transparency. "Part of trust is being transparent about what you do and how much you charge for that.
"Obfuscation helps reduce trust, they are not sure whether they are paying for skill or market beta," he said.
He said the asset management industry is trying to pretend there is a large amount of skill everywhere, constantly trying to hire the next Neil Woodford or making products more complex.
"Asset management is a simple business but it's not an easy business. Be transparent about what the cost is. If it's clear what you are doing then you can get trust."
Godfrey agreed: "If you want to engage people you need to put them in a position where the option is as simple as it possibly can be."
But he said investment managers' margins needed to come down. He said 80% of the industry agreed margins needed to be cut but no action was being taken.
Godfrey said: "Since 2008 we have heard nothing but [the need to create] consumer trust. We can't make this an objective, doing the right thing is an objective and people can decide for themselves whether they put trust in us.
"Trust is a consequence, it's not an objective. We should start to think about what are the decisions that will make people trust us."
He spoke of an information asymmetry and warned the industry needed to watch out for using behavioural economics to "ponder to clients' bad traits".
For instance, he explained, the perceived client risk averseness had led to the emergence of new products which are "taking risk off the table in a way that adds cost and is not in the interest of the consumer".
However, in the platform space costs will come down soon, he predicted. "We will see consolidation and cost reduction over time.
"You see [the market] move through cycles, we will see a new cycle in the platform market in due course."
PP recently found trustees and independent governance committees are still a long way from getting transparency on transaction costs, and that asset managers need to step up their game.
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