“Transparency is ALWAYS a good idea but…”

true and fair

Transparency is not what you see but what you don’t see. It is the absence of anything getting in the way of the true state of affairs.

Robin Powell, the evidence based investor is making just this point. The problem that Jason Hollands has is not with exclusion but inclusion.

This is where the problems start.

If fund managers aren’t able to explain to people what they are paying for fund management without bamboozling them, then the last five years effort to disclose cost and charges has been in vain.

Let’s turn to Dr Sier, who chaired the FCA’s Institutional Disclosure Working Group.

So what is the problem with transparency?

If my definition of transparency (what you don’t see) is remembered, then the fund managers have a bind, here is that bind.

Industry experts said they expected some customers to be left reeling by the “bamboozling” list of charges and higher-than-expected fees, with one investment platform saying the difficulty of gathering consistent data meant inaccurate figures would appear in customers’ statements.

There are two quite separate issues here

  1. the incompetence of customers
  2. the incompetence of the data suppliers

Or as Chris Sier would put it, the issue’s either with the student or the teacher and in either case the problem reverts to those selling fund management (either directly or on a platform).

If the problem is with the student (the customer), then we really have to ask why these stupid people are invested in funds that are so complicated to explain.

If the problem is with the data suppliers (the teacher), then it’s a case of keeping on trying.

Either way, it is incompetence of the participants , not transparency, that is getting in the way. The problem with transparency does not exist , transparency is – as Jason protests – always good. Transparency doesn’t bamboozle, incompetence bamboozles!

What the FT is reporting on , is a problem of credibility for fund managers

Last year, it emerged that investors in popular funds were likely to pay almost double the ongoing charge once transaction costs were taken into account. However, doubts were raised over the costs due to the recommended method used to calculate them, with some funds predicting zero or negative trading fees — an impossibility.

This week, investment companies said a lack of consistency in the way asset managers were calculating such fees and inconsistent information meant “wrong” numbers could find their way to investors.

In the short term, it is possible, using the slippage methodology, to see transactions generating value (you can get lucky). The point is that over time, the more transactions in your fund, the higher the costs.

What is being hinted at (after all this time) is that the investment management industry is still disputing the methodology it has signed up to. Frankly this is filibustering.

Wrong numbers?

We have known that investors have been given the wrong numbers for years. Alan and Gina Miller’s True and Fair Campaign (2014), has been making precisely this point for the past five years.

The investment industry stands accused of incompetence, lethargy and wilful obstruction.

This has not just been dropped on the fund management industry, as Gina points out. If those who run funds cannot comply with MIFID – after all this time, surely that sends clear signals to customers about their integrity and competence.


Wilful obstruction?

I question the motivation of the parts of the investment industry to deliver transparency.

I quote Jason , from his comments in the FT.

Customers will see the fees they have paid as a percentage-based and pounds and pence figure based on the value of their portfolio at the end of the charging period. For those customers whose portfolio has shrunk, those fees could look unexpectedly high.

“Customers will be getting these statements for the first time when it’s been a very difficult market for returns,” said Jason Hollands, managing director at Tilney Group.

Of course a manager who has under delivered and is showing higher charges than expected can expect some awkward questions from customers.

Jason Hollands gives an example of how such questions might be answered.

“If your portfolio has shrunk over the last year, and the portfolio was traded and reconfigured, maybe to adjust to a new risk profile, then the cost in percentage terms could look much higher than expected.”

Where is the problem? the customer sees what part of the underperformance is down to the upgrade , what to the markets and what the positive/negative impact of the fund management has been?

Customers will see the fees they have paid as a percentage-based and pounds and pence figure based on the value of their portfolio at the end of the charging period.

A customer is paying for an upgrade, as long as the upgrade delivers; again- where is the problem? The marketing departments of fund management industry are quite up to messaging that!

But the FT paints a different concern.

Wealth managers said customers might be less pleased to see the amount charged by their financial advisers and investment platform, following a turbulent year in markets.

Now that sounds a very convenient time to delay transparency!

But if transparency is always a good idea, why should it be turned on and off as suits the marketing departments of the investment industry?

It’s always a good time to be transparent.

true and fair3


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to “Transparency is ALWAYS a good idea but…”

  1. John Mather says:

    Complexity is not only a pensions issue
    We are suffering from too many rules.
    So many that few understand them but spend
    otherwise productive time ensuring compliance
    In 2020 you will need rules to decide if you are employed
    HMRC has published a further policy paper and consultation
    document setting out details of the proposed reforms to the private
    sector off-payroll working rules due to take effect from April 2020.

    Not only rules to dictate action but rules to prove that you conform

    Is it any wonder that productivity is so poor in the UK

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