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The Big Question: What changes would you like to see in the investment industry that could really make an improvement for investors? Graham Bird joins other industry experts in outlining the issues they would tackle to improve the investment experience and results for the end investor, ranging from education, ESG considerations and increasing the use of proprietary research:
Recent regulatory changes are making it increasingly difficult and expensive for smaller companies to access capital markets, while retail investors, who form an important source of funding for smaller companies, are being denied the opportunity to invest in IPOs and other primary fundraising events.
This demographic also finds it difficult to exercise their shareholder rights as many retail platforms do not distribute shareholder communications and are not interested in processing votes.
As a highly engaged, smaller company investor, I believe there should be a fundamental re-think about how individuals can vote and access shareholder communications.
Regulators need to roll back a lot of the ‘one size fits all’ regulation to make it cheaper and easier to raise capital while allowing retail investors to participate.
Technology can solve many of these problems. This could be through fintech businesses such as PrimaryBid, which offer retail investors the opportunity to participate in IPOs, or from the retail platforms themselves being forced to pass on shareholder communications, and encourage engagement by using technology to improve efficiency and streamline processes.
It has to be simpler and more engaging communication. Yes markets can be complex, and fund management is a specialist activity, but we need to stop confusing our customers and using jargon.
As an industry we say we are customer focused, and then proceed to use language that is anything but – when did you last hear ‘ex-ante’ in any normal conversation?
Still, we do not always communicate openly and clearly with our customers and this just makes no sense if we want them to be interested in what we do, and to trust us.
We know that as a society we need to invest and save more in order to lead a comfortable life in what is now a much longer retirement period. We also know people do not trust financial institutions. Is the way that we speak to them helping close that gap? I do not think so.
Investing should be something that people want to do because they understand the benefits it can provide. Good communication can help enforce this and even make it interesting. We are making progress, but we’re still a long way off that.
A move to high active share and index-agnostic funds. At Saracen, we have always been perplexed by the notion of being forced to own stocks in portfolios that we believe to be overvalued simply because they represent a certain proportion of an index.
We have struggled to see how such an approach can be beneficial for investors over the long term. Indeed, in the modern world of low cost trackers, active managers can no longer justify charging fees for closet index tracker funds.
Instead, we are much more interested in the valuation of a stock and we try to build portfolios of equities that are cheap on our valuation metrics.
Indeed, we have never had a conversation at our investment committee meetings discussing the percentage that a geographic region or a stock represents in an index.
This approach leads to portfolios that have high active shares and hopefully allows our clients to benefit finding value in the market.
Over the past decade technology has driven a fundamental shift in how we live, what we expect from the businesses we use and how we interact with them. For too long the asset management industry has failed to embrace some of the digital technology that has propelled other service sectors forward.
From robo-advice to digital and automated servicing, asset managers need to invest in technology in order to improve the efficiency and effectiveness of the client-service proposition – delivering clients the kind of tailored offering they are used to from other sectors.
The asset management industry also needs to step up to help clients to achieve their real-world investment goals – like securing adequate savings for retirement or generating an income.
There can be a big disconnect between these goals and the benchmark-related investment portfolios traditionally built to deliver them – opening up glaring gaps between asset managers and their clients in terms of what constitutes success.
Using real-world outcomes as the explicit targets for investment portfolios could help close this divide, ensuring that managers are better aligned with clients’ success criteria.
One of the most significant changes we can make, both for the long-term future of society and the investment industry, is to give greater support to financial education and to make it more widely accessible.
YouGov research, for example, has revealed that only 8% of 18 to 24 year olds are confident of handling money and this needs to change. The UK government’s Financial Capability Strategy recognises the vital window of opportunity that exists between the ages of three and 18 to transform the UK’s future financial health.
It is vital that we give children and young people a greater understanding of and confidence in how to manage money. One way of achieving this is through the use of interactive games, which are designed to help children to improve their maths and calculation skills.
Liontrust, therefore, is working with partners to develop financial education programmes, including the creation of football-themed games, which will be incorporated into schools in some of the most deprived areas of England.
One of these is Oxford, an area of which is in the top 2% most deprived in England for education and skills.
Traditionally people have seen investments as purely profit-driven with no other consideration for the wider world. This has led to a specific type of investor being interested, usually with a strong financial background, and left other potential investors excluded.
In a world where we are increasingly aware of the growing social and environmental challenges, there is great opportunity to focus investment on ‘impactful’ businesses that go beyond pure profit, which benefit society in addition to a financial return.
Investing in an impactful way enables a much wider group of investors to enter this field. Investors who can relate to the challenge being solved and start seeing the business as a whole, where profit sits neatly alongside purpose. Here, investors have a much broader set of skills and knowledge in judging what makes a good investment.
When an investment feels connected to a greater purpose, such as medicine, the environment or education, this helps break down barriers and empowers a new type of investor who realises they can add value to the world without having to just be a financial expert.
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