Instead of just talking the talk, Mr Godfrey has decided to set up a new investment trust aimed at practising what he has been preaching for the past few years – his venture, the People’s Trust, has raised £100,000 through crowdfunding to launch the fund, and will be 100 per cent investor owned and pay no bonuses to its managers. Notably, the trust will be actively managed by a team of asset-class specialists – which is perhaps why Mr Godfrey also warns that we should be rather less broad brush in our criticism of active management.
But this position is common sense rather than self interest. While there are those who will chose to interpret the FCA’s position (which we outline on page 36) as a categorical damnation that all active management is rubbish and should be consigned to the scrapheap, there are numerous managers that deliver outperformance and already make every effort to lower costs and improve transparency, as Mr Godfrey also aims to do. Active managers also play a crucial role in holding listed company management to account, and in highlighting their compliance with its stewardship code the Financial Reporting Council shows many are doing a good job here, too.
And dumping active management would also beg the question of what replaces it. The common response of its critics would suggest a sensibly allocated selection of tracker funds and ETFs are all you need, and will do the job much more cheaply than unreliable and overpaid humans. Yet while that may be true of some markets, such as the hugely liquid and broadly efficient US, it is most certainly not true of certain more illiquid asset classes where active management does add a lot of value – property investment for example. Thus the solution is most certainly not a binary one.
As for the FCA, I offer only reserved praise for their exposé, because I am surprised it has taken so long for them to engage a problem that has been staring us in the face for years. I am talking, of course, about the compounding effect of charges on investment returns, a mechanism which means that even marginally higher charges can add up to a massive degradation in returns over a long-term period. I have never seen any figures that attempt to quantify the aggregate damage to savings, but my suspicion is that the unearned transfer of wealth from customer to provider over the years runs into many, many billions. At least the end of this daylight robbery is in sight.
