Value, vendetta and that R number
In this deeply insightful diary entry, JB reflects on his own AoV journey with the fund board on which he serves as an iNED and ask some key questions around the facts of the report versus the message, clarity versus transparency and who apart from the end-investors should the report target
Salutations Dear Diary,
Since my last entry I have been in creator mode. First, taking the SVM Asset Management (I sit on their fund board as an iNED) Assessment of Value (AoV) report to conclusion and publication, then more recently as co-author for a NGO report mapping the “responsible investing landscape”; and now a series of short technical guides on fund selection and ESG for a well-known research agency. Board-related work continues apace but being slightly out of the board cycle affords me more time to bash the keyboard. These reports serve as useful reminders to me to ‘know my audience’, when it comes to context, tone and accessibility. It makes me reflect on what we can learn from the communications and reporting of the Coronavirus pandemic.
Simply put, the COVID-19 communications strategy is the largest single public communications exercise since the war, and it is occurring right now. Indeed, it far outweighs even those war efforts due to the breadth of multi-media and our 24/7 interconnectivity. With it the COVID-19 crisis has brought into sharp relief the use of statistics. In the case of Coronavirus, they are particularly unsavoury and depressing. However, they serve as a great example of how statistics can indeed nudge, persuade, misdirect, lie and frequently. The media have jumped in. Suddenly R numbers are everywhere, percentages of fractions of percentages of unknown origin numbers bubble everywhere, across our screens.
It made me reflect on a recent webinar by the excellent Holly Mackay at Boring Money. Holly reviewed a number of AoV reports and noted good and bad points. This osmosis is essential in our industry. A large aspect of her work focuses on investor surveys and the pursuit of clarity.
Much of the debate about assessment of value reports so far is not in the fact but the message. We debate the nuances and the fancy charts. There is a huge focus on clarity and what the investor wants. In doing so we can too easily forget that an unseen assessment sits beneath the disclosure.
There has to be compliance and some adherence to the Asset Management Market Study in principle and in the detail. I am minded that there is also friction between clarity and transparency, a vendetta of sorts. It is not a contradiction that there can be absolute clarity of a misleading message just as much as a lack of clarity within full disclosure. This is a difficult area for fund boards to balance and not nearly as straightforward as commentators would have you believe.
Just look at the various statistics relating to COVID-19 deaths. There is a huge inconsistency and doubts as to whether early data was simply misleading the nation. There was clarity but not transparency. Now arguably we have the opposite. Why then can the public at large come to understand percentages and medical statistics, when it comes to COVID-19, but not fairly accessible metrics when it relates to fund data? Is it due to a sheer absence of interest, gulf in terminology used by our industry, or is it the difference between the messaging of mainstream media and industry? Does simply reaffirming a statistic or metric enough times help sink a message in. In my socially distanced conversations, the answer would seem to be yes. The public are becoming armchair epidemiologists. It gives me some optimism that they could understand a fund, some day.
For the AoV, much is placed on target audience which has been taken as short-hand to always mean the end-investor. Not so. If your clients are actually fully advised or discretionary professional fund investors then clearly you are talking to a different audience: more Radio 4 than Beats Radio.
I found this particularly challenging working with colleagues whom typically write for institutional investors. The balance of investors was intermediated but there was a small population of direct retail investors too.
Given end-investors can frankly be naive as to what is actually good for them, then how much should we listen to their definition of value? Before Holly and the pitchforks come for me, there are many studies to back this up; not ignoring FCA’s own behavioural working 2014 paper that concluded investors mostly chase past performance. I blame Marketing. To pervert the rare wise words of Donald Rumsfeld, investors don’t know what they don’t know. By comparison an industry professional knows (mostly) what they don’t know and that’s the difference. It’s not just jargon, it’s the full operation of an investment fund, much of what is obscure to the investor.
What then to value? In our rush to achieve clarity; in our assessments, we should not lose sight of what the statistics actually say or forego transparency as being too difficult, too technical. Here the consumer lens and compliance really do need to work it out.
The coverage and media focus on the ‘R metric’ clearly show the public can get it, whatever it is, but only when hammered into them every day, incessantly. This is a form of propaganda, well-intentioned but propaganda none the less.
It is a lesson for all fund boards, that the answer is not always about dazzling or distracting the reader with fancy infographics but rather talking to investors honestly and openly about the challenges and the successes. About hammering home simple messages, repetitively and consistently.
Jack Bogle understood this and many investors today now understand the concept of indexation and fund cost; (but sadly not value). Intermediaries thus need to help facilitate getting that value message across.
The good news is that we are purportedly now a nation of getting things done. Get Brexit done (well, “¦), get COVID done (no wait that doesn’t scan). More still we have begun to use mobile apps to measure our wellbeing. Imagine if we could do the same for our wealth being? Oh, wait we can. Beyond brand or past performance; what we need now is a V number and one that is not just about the lowest cost.
“Behind this mask there is more than just flesh. Beneath this mask there is an idea… and ideas are bulletproof.” “Artists use lies to tell the truth. Yes, I created a lie. But because you believed it, you found something true about yourself.”
— ‘V for Vendetta’, Alan Moore as V, directed by James McTeigue and written by the Wachowskis brothers
In his monthly column, Diary of an iNED, JB will record his experiences on the boards of two very different organisations as he navigates the highs and lows of a plural career at a time when the fund industry is beset with challenges and opportunities in equal measure. JB can be contacted at email@example.com.
FBC’s Assessment of Value Report Bank
FBC curates AoV reports as they are released and become available. For more information on how to access this report bank, and on FBC more generally, please see https://fundboards.org, or get in touch at firstname.lastname@example.org