Does the UK’s status as an international financial centre mean that UK investors get a better deal? Policymakers are embarking on a radical reform agenda to ensure that they do. It is up to firms themselves whether they come out of this process bruised or enhanced.
Advocating the status quo will leave asset managers out of the discussion. The sector needs to paint a picture of sunlit uplands in which retirement savers can access practical guidance and affordable products with Government nudges.
Asset management is a top UK export earner, accounting for 6 per cent of net services exports. British fund managers are known to households and institutional investors across the world as leaders. Foreign investment companies put their portfolio managers in London so they are close to the beating heart of the market.
The financial regulator is intent on stoking the fires of competition through a wide-ranging series of changes aimed at increasing efficiency and reducing costs. This has led to a media spotlight on exactly how investment works and what investors are paying for.
Normally reticent asset managers are now being called upon to explain their businesses and their place in society. Those that articulate a compelling vision will have the opportunity to shape their business environment. Those that fail to do so risk ceding the narrative to competitors and oftentimes hostile commentators.
The days of the final salary pension are nearing an end, and people are being asked to take more responsibility for their retirement savings. The sector will therefore become much more visible to consumers. As this happens, the questions being asked of the sector will become more public. What responsibility do asset managers have for ensuring reasonable executive pay? What will it take for retail investors to understand how they are being charged? Can an algorithm ever give a person proper advice?
Maintaining a dialogue about these issues with policymakers and regulators in Westminster and Canary Wharf is crucial, but it is only part of the equation. Shaping the business environment also requires mobilising employees, partnering with civil society and speaking directly to customers. Without high street branches and daily customer touchpoints, asset managers have greater challenges than banks in communicating their role in society and earning their licence to operate.
By next week the UK’s asset managers will have sent in their responses to their regulator’s proposed competition remedies. The Investment Association is close to agreeing to a standardised template for transparent charges. The Government is consulting on how to merge small pension schemes and make them more efficient.
Asset managers can use these high profile initiatives to convey the role they play in making capital available to businesses and helping people plan for their future. Doing this in a compelling way means taking a step outside of their comfort zone, forgoing the acronyms and jargon of City insiders and seizing the opportunities offered by a new, more transparent era. Risk, return, pounds and pence resonate; smart beta and blended lifestyle strategies don’t.
The businesses that do this well will have a newfound respect from their customers and political stakeholders. Those that fail to embrace change may have it uncomfortably thrust upon them.
Richard Fenner is a consultant in Burson-Marsteller’s UK public affairs practice.