Rob Reid: Why clear disclosure is critical

Rob Reid

FCA chief executive Andrew Bailey recently stated it is important the right incentives are in place for fund managers.

Those skipping quickly through the various web stories on the subject might have thought this meant the current incentives regime was to be put to one side. But no such luck.

What Bailey was actually talking about is making sure things are aligned; that the objectives set by a manager of any particular fund accurately reflect the objectives of a typical investor.

But what exactly is a typical investor, I hear you cry? And I take your point. There is obviously no such a thing. But the regulator has long been encouraging fund managers to bear in mind the kind of person each newly designed product should suit, whether that be a single or multi-asset fund.

Now, I do not think it is unfair to say that a lot of the funds designed in the past have been done so to catch the eye, as opposed to being strategically aware and sensible from an investment perspective.

This new approach of actually having to think about who would buy the fund, how much it would form of their portfolio and what kind of capacity to risk and risk profile they would have, requires a level of information from the end user that is not currently available.

Collecting lots of information is always a difficult task and it becomes even more difficult to justify when that information does not appear to be used.

Having read various people’s complaints regarding the Gabriel system over the last few weeks, it is quite clear most believe the information currently collected by the regulator is not actually put to any use.

In short, providing relevant information is essential, as is only requesting what you need. The incoming General Data Protection Regulation will make that a legal requirement whether we leave the European Union or not.

On the topic of relevant information, January saw the Canadians bring in what they refer to as CRM2. This is a far more stringent level of disclosure than we currently have in the UK.

Their performance reporting is now far better than anything I have seen here, in that it focuses on giving the alternative for both money weighted and time weighted returns, and allows you to measure how investments have performed and what you have been charged to deliver said performance.

The simplicity of the disclosure is where its power emanates from. Page after page of detailed notes, caveats or assumptions do nothing for the end client. Clarity is everything.

Too many providers today believe the communications that go out to advisers are also suitable for those that go to the general public. That ignores the fact that the general public’s interest is temporary, while the adviser’s is ongoing.

Rob Reid is partner at CanScot