The price of everything, the value of nothing in fund management

Sparring with travel providers over COVID kerfuffles brings home the importance of customer service for head of multi-asset investments David Coombs. For him, it’s worth paying for.

Santorini

As I mentioned last week, I took my Mediterranean holiday in Wiltshire this year. Unfortunately the weather was distinctly Welsh and I returned to work – uh, same place as the holiday – rather rusty.

Even worse, I still haven’t had a refund on my flights despite them being cancelled many weeks ago. This got me musing over the pointy end of customer care and value for money. Usually, these issues tend to be abstract and theoretical when you’re an investor discussing them with company management. These days, it is very easy to understand the plight of customers fighting poor service …

I have booked two holidays over the past six months, one with a boutique agent and one with mass market platform Expedia. With the boutique I got a personal agent who keeps in regular contact and advises me of any changes and what’s going on. He gives you his direct contact details while you are on the holiday and takes away all the stress. This is brilliant, yet, as you can guess, not cheap. Expedia is much cheaper.

My holiday at the beginning of June, booked through Expedia was cancelled, obviously through no fault of its own. It didn’t inform me, however. I found out because the BA app told me my flight was cancelled. Despite it being covered by the Civil Aviation Authority’s ATOL financial protection scheme (it was a package), I was told by Expedia customer services that I wasn’t necessarily entitled to a refund. I quoted the ATOL website, but was told it was out of date. When I mentioned it was shown under the heading “COVID 19 Update Portal” the agent quickly changed his mind and said I was covered, and that he hadn’t actually told me otherwise. It was truly like a Monty Python sketch. Meanwhile, I still haven’t received the refund.

I’m confident that my travel boutique would have dealt with all this hassle for me, as he has in the past. For me, that would have been worth paying for. So often, a lower-cost option turns out to be lower value and higher risk. It’s only when things go wrong that we typically appreciate value for money. Guess who I will be using when booking my next holiday?

Value is often paying a bit more for better quality

It’s the same in any industry and asset management is no exception. In a 10-year bull market where virtually everything went up, value becomes price: you buy the market the cheapest way possible. Yet will the March crash bring about a reappraisal? Over the past week or so, markets have seemed relatively becalmed, giving me some time to dwell on our own customer service. I’ve been reviewing what we’ve done with our multi-asset funds over the past three months and how we’ve kept our investors abreast of what’s going on. I keep asking myself, have we offered our investors value for money?

The press has been pouring over the new value statements that asset managers have been producing, leaping on those that have underperformed – quite rightly, too. It will be interesting to see those statements a year on when they include performance over the COVID period.

But are returns and price the only metric upon which to judge value? What about risk, communication, transparency and corporate engagement levels? How should we measure these criteria? Should we? Are they quantitative or qualitative? What should be the order of priorities and are they the same for every client? Clearly, these areas are very difficult for retail customers to make judgements, so this is where advice has a big role to play.

I will also be keen to see if the passive industry comes under more scrutiny on some of these softer issues when their value statements are pored over. For example, how were the constituents selected in specialist ETFs? What are the full transactional costs included in ETFs charges figures? How well did the ‘managers’ communicate with investors during the worst days of the crisis? When they say they are engaging with companies – how active are they really or are they just ticking boxes and filing reports?

Sometimes, value is paying the same for more

Regular readers of my blogs will know I passionately believe in active management and feel that allocation of every pound of capital should be made carefully rather than just ‘sticking it in the market’. I believe we shouldn’t reward poor management teams or companies acting inappropriately, for example. If you invest passively, you almost certainly will do.

So what should the price be for active management? We have looked at what savings we could hypothetically make if our Strategic Growth Fund was invested passively from the ‘bottom-up’ using active asset allocation. We used its current asset allocation and created a portfolio of relevant ETFs from a number of providers for best fit.

The saving? Zero. The ongoing charges figure (OCF) was completely unchanged.

Our annual management charge (AMC) is 50 basis points. AMCs of multi-asset passive funds vary greatly – I guess depending on the level of active asset allocation and the number of asset classes used. 30bps appears to be a market level, but it’s hard to be scientific. So you could make an argument that we are charging a premium of, roughly, 20bps for active management that includes exposure to specialised portfolio protection, such as currency hedging and put options. On top of that, since lockdown we’ve held seven webcasts and posted numerous blogs to keep our investors in the loop.

So do I feel we provided value for money over the past three months? Sorry, not for me to answer. But please let us know what you think.

 

Blog image by David Coombs. 

 

 

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 5 (5 votes)

Subscribe to the In the KNOW blog email

Archive