In June 2017, the Financial Conduct Authority (FCA) released a report, the Asset Management Market Study.
The study highlighted the key issues in the Asset Management Industry as:
- A lack of transparency of fees for the investing public
- Active funds are not providing value for money
- Marketing funds on past performance is not an accurate indicator of future performance
The study findings are a vindication of what Capital have been championing for years.
At Capital, we have a unique way of doing things compared to most other financial planners and asset managers in the UK. The ‘Capital way’ is driven by our core values of integrity, transparency, and most importantly always being client-focussed. We continuously find new ways to make Capital that little better for our clients, even if it means swimming against the tide.
Fee and charges transparency for clients
The FCA found little evidence that the asset management industry was transparent and open about charges and fees, which means that the investing public are left in the dark.
At Capital, transparency and clarity of fees and the total cost of investing is something we embrace and support. We always tell our clients how much they are paying in pounds and pence each year. We believe this allows clients to understand the total cost of investing and evaluate the value on offer. We also outline where we are taking the fee from, so our clients feel in control and gain peace of mind.
Our most recent innovation is the flat-fee-for-service. For the last two years we have been offering clients our flat fee terms – we have three specific service levels for different levels of financial complexity. We clearly explain what is included within each service and help clients to identify which one is most appropriate for their individual circumstances.
We proudly announce our fees and services on our website, which can be seen here.
Expensive active funds don’t provide value
In their study, the FCA, found that some investors when choosing between active funds may choose to invest in funds with higher charges in the expectation of achieving higher future returns. However, their additional analysis suggests that there is no clear relationship between charges and the gross performance of retail active funds in the UK.
Active vs. passive investing is a continuous debate within the Financial Planning industry. An assumption many investors make is that because active funds are more expensive they will receive higher returns, whereas in fact active funds rarely outperform passive funds after charges. This means that the premium an investor is paying for the active fund outweighs any benefits they may receive through higher returns, providing little or no end value to the consumer.
Capital’s investment philosophy is not based on guesswork, crystal balls, or prediction. We believe in low cost investing, that uses science, probability, and diversification to provide our clients with an investment portfolio that can weather market downturns. In summary, we never put all your eggs in one basket.
Asset Managers marketing funds based on past performance data
The FCA study found that past performance information is difficult for the investing public to interpret and compare and does not appear to help when trying to identify future outperformance.
The research from the FCA study indicated that there is no correlation between past performance and future performance of investment funds. We echo this research from our own experience.
Any backward-looking advertising and promotion will obviously focus on the most beneficial (for the asset manager) time period and fund. The FCA went on to state that their caveat to investors continues to be the case ‘past performance is not a reliable indicator of future results.’ You have been warned.
Here at Capital, we worry about your finances so that you don’t have to.