What follows is a summary of the presentations at the roundtable, held at the end of March and focused on the challenges facing asset managers as they produce their Assessment of Value statements.
Interestingly, this second roundtable was held almost exactly six months from the first meeting in October last year which highlighted the importance of Assessment of Value, one of the key deliverables of the Financial Conduct Authority’s Asset Management Market Study and brought home to many at that first meeting the enormity and complexity of the task ahead. At this second meeting, happily the representatives of the 40-odd asset management firms present were in a state of better preparedness, but no less engaged and keen to learn from the speakers and presenters, as well as other attendees.
To coincide with this meeting, UK Fund Boards released its inaugural INSIGHTS report entitled Why Assessing Value Matters, and if you would like to download a copy of the report, you can do so here.
Finally, if you have any further questions, we would love to hear from you, and can be reached at firstname.lastname@example.org
UK Fund Boards’ Senior Managers’ Roundtable – Assessment of Value
The introduction of the Financial Conduct Authority’s Assessment of Value criteria is very much like Brexit: the funds industry know it is going to be happening soon and that it will fundamentally change their lives – but so far, no one knows what it is going to look like.
Just a mile away from chaotic scenes in Westminster, over 80 members of the UK’s fund management industry met on March 28 at London’s BNY Mellon Financial Centre to discuss the incoming rules – and what everyone was doing about it.
The day, chaired by industry stalwart and former Senior Adviser at The Investment Association Philip Warland, was held under the Chatham House Rule to allow attendees and panellists the freedom to ask – and attempt to answer – the toughest of questions honestly.
In the first panel, Fitz Partners’ CEO Hugues Gillibert and David Beard, Head of Customer Insight and Fund Reviews, LGIM, looked at ways of analysing data in order to try to be able to measure what the FCA wanted.
Gillibert at Fitz said his data showed there had been a rapprochement between the value for money retail and institutional investors received, but there was further to go – and the FCA would likely want to see the gap close even more.
There will be issues here, of course, as shifting investors to new price plans is not always easy and expecting customers to (want to) understand the intricacies of the various regulatory demands on costs is optimistic.
The overriding message of the panel was to understand what a firm itself believes to be “value” as this is best – and only real – starting point. Only then can they make it the data understandable to the end investor… and the board.
The next panel was led by JB Beckett, Director Emeritus, Association of Professional Fund Investors (APFI) & APFI Advisory Board Member Sunil Chadda, who outlined the findings of two papers they had just completed on assessing value for money. You can find links to the papers [here]
Chadda opened with warning the attendees that many in the industry “had forgotten the customer”, something that would be quickly spotted by the regulator under these incoming assessments.
He said most fund managers were not thinking about how an investor approached and analysed the costs of their funds, although added that changes in regulations had not helped either side of the client/manager relationship – fund managers found what needed to be produced onerous, and clients often do not understand or even want to engage with it.
Chadda said, however, that this increased regulatory focus on value for money created an opportunity for the sector, which is seeing squeezed margins, to put in place some key market practice improvements and set a course to lead the world.
Beckett urged fund managers to work with their newly appointed independent non-executive directors to create a clear explanation of the value for money it was providing. “They could be your best defence,” he said.
The FCA will not accept all assessment of values looking alike across the industry, said Chadda, and it will have been both a failure of the firms themselves and a missed opportunity, should it end up this way.
He warned that managers thinking they could get away with a paragraph or couple of lines in an annual report instead of a full value assessment were mistaken – and would be taken to task by the regulator.
After this Reality Bites session and restorative coffee break, Gerald Rehn, Head of international Product, BNY Mellon Investment Management, took to the stage to tell attendees what he saw as the end investor wanting from the assessment of value.
He said the regulator had been clear that it wanted to see an assured assessment of the value for money fund managers were providing for investors, but the clients themselves did not have cost at the top of every one of their lists.
He said quality of service was an important consideration for the industry, which also had to contend, in many cases, with an intermediary.
However, he said this only reinforced the notion that although getting these moves right is a task for the industry and that each company needed to think what value for money – not just how cheap something can be – means to them.
The final panel of the day was led by Chair Warland and featured Rob Graham, Associate General Counsel, Franklin Templeton Investments, David Butcher, Trustee, Legal & General Master Trust, Dawn Hyams, Senior Consultant, The Wisdom Council and Brandon Horwitz, Principal Consultant, NomBon Consulting.
They tackled the issues of how an iNED can complete the assessment of value picture and how to define their position within the company. With so many complexities around both the business of fund management and what is presented to the end investor, it is going to be easy to unwittingly confuse the new directors, before anything is even shown to the client, the panel said.
Collaboration is key and an understanding of the knowledge and expectation of clients is vital, too.
Rather than overloading the client with information, which can end up by the entire operation becoming nothing more than a box-ticking exercise, it is important to distil what value the value assessment should give to the end investor.
By getting it right, the customer should not only see the value they are being provided by the manager investing their assets, but how this capital is vital to grow the wider economy.
To close the afternoon, UK Fund Boards’ Catherine Battershill reminded attendees that the organisation was soon to launch an iNED members club that would operate as a forum to discuss all these issues – and more – as D-Day approached and beyond as the new regulations took hold.
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