So what does a poor boy do? (Aberdeen and Parmenion)

poor boy

Fund managers think of themselves as the asset managers of their clients -the investors. But lately they have found themselves serving platforms that treat funds as commodities. They have lost their primary relationship to their customers.

The millennials took it upon them to debunk the myth of the star manager to the extent that stardom featured high on the risk register.

inevitably, the drive towards a homogenised process led to homogenised results, active managers became passive managers with salaries, active funds were passive funds with higher fees. The closet tracker had arrived

There are a few exceptions. Terry Smith of Fundsmith is as close to his investors as Warren Buffet. Indeed his nickname- the sage of Portman Square, owes as much to his investor’s reverence for his personality as for his investment style.

But there are not enough Terry Smiths to go round and no sooner does one announce him or herself – than they’re off to Mayfair to get rich managing a hedge fund.

All this is depressing to the long-term investor. The chances of being able of follow a fund manager over decades is ridiculously low. Even the fund manager’s style is unlikely to survive the regular changes in management (and ownership)..

So the fund managers never get to know their clients and the clients never get to know their fund managers.

I rather suspect that Aberdeen’s mooted purchase of Parmenion has a lot to do with re-connecting with their investors. Even if the platform remains properly “open architecture”, and doesn’t promote Aberdeen funds over those of its rivals, Aberdeen will stall be talking to their investors

Which is rather better than talking to intermediaries, if what you are about is seeing yourself as the manager of people’s investments. It is not a particularly big step from being considered a fund manager to being a manager of funds.But in the pecking order that is called the “value chain”, owning the platform is a step nearer owning the relationship with the investor.

The logical next step is to own the advisor, which would complete the chain and mean that fund managers not only managed the fund administration but organised the fund choice. This process, known as vertical integration, is precisely what the Regulators have been trying to break-up for the past thirty years.

Ever since the birth of polarisation where independent advisers were set at nine pole and fund salesmen at the other, the assumption has been that intermediation will bring value to the consumer.

And now this idea is being challenged.

Aberdeen could own Parmenon and the advisers who use the Parmenion platorm and would anyone really worry? I quite like Aberdeen. They are my kind of manager – focussing on long-term outcomes and practicing what they preach.

Such an arrangement would at least mean the advisor was properly capitalised and there was some control in place – consistently applied.

Is this what fund managers should do? Is the ultimate goal disintermediation?

Two years ago, I sat on a platform alongside Jon Kaye and Martin Gilbert, Martin Gilbert is CEO of Aberdeen, John Kaye Britain’s most passionate advocate for disintermediation. At the time i didn’t get it but I think I get it now.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to So what does a poor boy do? (Aberdeen and Parmenion)

  1. jeremy oakley says:

    spot on Henry, the unintended consequence of RDR is that it incentivises fund managers, advice firms and insurers to return to vertical integrated models

  2. RS says:

    Another good post Henry. By having a stronger relationship between the saver and the person doing the actual investing you may encourage more trust, more understanding about ups and downs of markets and hence overall more measured behaviour on both parts – long term savers and long term fund managers. The rapid growth of robo-advisors would indicate that the public may prefer a direct relationship with a computer rather than a human being when it comes to investing!

  3. Stan Kirk says:

    The earlier takeover of 7IM by Caledonian is another (even bigger) step in the same direction. Look at the continued growth of St James’s Place which operates almost like RDR never happened. Meantime, ‘successful’ wrap operators earn a measly 10-15 bps profit and there aren’t many of those – witness the latest decision to withdraw from Axa. Canny and experienced operators like American Express and Macquarie decided some years ago that it would be hard to earn a decent return on capital in the UK. The UK independent adviser sector remains stubbornly heterogeneous with little sign of the growth in national operations which the advent of platforms and ‘wealth management’ was forecast to bring to the UK (just like it had earlier done in Australia) more than a decade ago. Perhaps everybody will slowly learn to be satisfied with the ‘market return’, because to beat the market is truly exceptional and very rare.

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