Fund managers under pressure to rebuild trust
LONDON (Reuters) - Fund managers have failed to rebuild relationships with investors that soured when the global financial crisis left them nursing billions in losses, leaving their clients even more disgruntled.
Trust between fund managers and their clients has continued to deteriorate two years on from the crisis, a survey by research organization IBM Institute for Business Value showed, and managers at the Fund Forum in Monaco said the industry faces an uphill task to restore clients' confidence.
"We'd be kidding ourselves if we thought that our institutional or our retail clients thought we (as an industry) did a good job in the downturn. We need to be more transparent and keep products simple," Martin Gilbert, chief executive of Aberdeen Asset Management (ADN.L) said.
He said last year's market rally may have bailed out weaker asset managers, delaying efforts to rebuild relationships with clients.
Tom Brown, partner at consultant KPMG KPMG.UL, said clients who may have had one meeting with a manager about a new mandate and asked 10 questions, now have 10 meetings and ask 100 questions.
"We have seen a massive increase in the demand for investment performance verification and reports which look at a manager's risk management processes to check if they are actually doing what they say," he said.
According to the survey presented at the event, close to 70 percent of clients strongly agreed that their provider was acting in its own best interests as opposed to theirs, up from 66 percent last year.
Two thirds of providers themselves strongly agreed that they were acting in their own best interest, up from 62 percent last year.
"Two years after the crisis the trust gap has continued to widen," Suzanne Duncan, industry leader for financial markets at the IBM Institute said. "We have been measuring trust for five years and it is not just that the market crisis has destroyed confidence."
The survey polled 2,755 industry participants, including 1,076 largely institutional investors, split fairly evenly across the Americas, EMEA and the Asia-Pacific.
After the financial crisis left investors nursing heavy losses, fund managers were criticized for over-emphasizing asset growth through the launch of hot products which had little long-term value. Investors have also questioned fee structures which encouraged managers to take more risk when they should have been putting the safety of investors' capital first.
Rupert Clarke, chief executive of fund manager Hermes, said there is always a danger when markets rally that everyone goes back to doing just what they have always done.
"Markets are going to remain challenging and because of that I believe investors are going to continue to ask questions of their asset managers and of their advisers and therefore these issues are going to have to be addressed."
The IBM study also identified a widening gap between provider and investor perceptions. When asked what they thought people would pay for, providers put best-in-breed products at the top of the list, followed by one-stop shops.
But investors plumped for unbiased, high-quality advice, client service and convenience rather than products. "Investors are just screaming: Make my life easier for me!" said Duncan.
Joachim Faber, chief executive of Allianz Global Investors, blamed financial intermediaries, saying a key problem was fund managers' lack of direct interaction with end clients.
In the retail market, the UK's regulator is trying to raise standards of financial advice and move to a fee-based rather than a commission-driven sales model. The idea is to better align investor and intermediary interests by removing the temptation to push mediocre products with big commissions.
In the U.S. almost 60 percent of business is now fee-based, which means that the overall cost to the investor has declined.
The picture in Continental Europe is less encouraging however, with the bank-dominated distribution model making it difficult for low-cost providers to make headway.
"In Europe the situation can only really improve with regulation," said Tom Rampulla, managing director of Vanguard UK, "But there is a powerful industry that benefits from this model."
(Editing by Erica Billingham)