Robert Reid: Can Godfrey’s People’s Trust deliver?

ReidRob

The news former Investment Association chief executive Daniel Godfrey is going into direct competition with the groups that did not support his wish for transparency is something to be watched with interest.

I have to say, the £100,000 being raised to kick-start the development of his new investment company The People’s Trust looks inadequate. I can only assume some of those supporting the project are providing soft help. Just how that aligns with an absence of bias I am not sure.

Anyway, from what I have seen it looks like it will be a fund of funds, and controlling costs when you have multiple layers will not be easy. The initial cost for investors is said to be around 1 per cent to 1.5 per cent, which takes me briefly to another topic.

A recent report on platforms tells us consolidation will gather pace, as scale is the only hope for those losing money to move into profit. This is likely to be driven by those using the same platform infrastructure getting together, which makes me wonder what advantage has been gained by providers all doing their own thing to date.

Perhaps a co-operative model would have made them realise far sooner what they add in value. Platforms have always been plumbing to the providers. It was all about control. And there is the rub. When money can move platform the same day it will mean charges will fall and the need to show added value will increase, which all sounds expensive.

But that is not to say only the rich platform providers will survive. Take for example some smaller players such as Nucleus, which, in enhancing offerings in a similar fashion to the major platforms, have spent a tenth of the costs yet delivered 100 per cent of the added functionality provided by their competitors.

I strongly believe the increasing focus on costs is partly due to the lack of easily digested performance statistics. When only two or three platforms provide accurate time weighted returns in their reporting there should be no surprise many focus on charges by default.

Charges are important, especially when returns for cautious investors are low. But they are not everything. Most people are happy to pay more provided they get value for money.

Returning to my original topic, Godfrey’s trust has objectives that many will identify with but given the focus on charges the pressure will be on if underperformance acts like a fee in itself.

The news that employees of the trust will not be paid a bonus is an easy PR tactic but I am not sure it will work if it is replaced with higher salaries where people have little incentive to perform to an exceptional level. As we have seen in the past, mutuality does not necessarily equate with people receiving modest pay packages. If The People’s Trust fails to deliver, then it has little room for manoeuvre.

Robert Reid is director at The Ideas Lab