It’s fair to say Daniel Godfrey, the founder of The People’s Trust, a new investment company raising funds for a launch in 2017, has ruffled a few feathers over the years. He was once a combative director-general of the Association of Investment Trust Companies and his proposed reforms of the open-ended fund industry saw him forced out of his more recent role as chief executive of the Investment Management Association.
Nevertheless, Godfrey’s flair for marketing, honed over a long career that also included stints at Schroders, Mercury Asset Management and Flemings, has never been in doubt. And the early success of The People’s Trust suggests he has tapped into a rich vein of investor dissatisfaction with what the funds industry currently has to offer. A crowdfunding campaign set up to raise money for pre-launch work on The People’s Trust hit its £100,000 target in weeks.
Godfrey has very deliberately positioned The People’s Trust as an attempt to undermine the established order of asset management – in line with many of the criticisms levelled against the sector by the recent Financial Conduct Authority. He has pledged the fund will cost no more than 150 basis points, for example, and promised to cap the salaries of employees, who also won’t be entitled to bonuses. Fund management groups contracted to run the money will get seven-year contracts to encourage them to think more freely and long-term than managers appointed on the more usual three-year contracts. And the fund will have a remit to be a responsible and engaged investor in the companies in which it invests.
Now, you may or may not agree with these ideas, but the early interest in The People’s Trust suggests, at the very least, that they strike a chord with many investors. Nor is Godfrey ploughing this furrow entirely on his own – for example, the approach taken to charges by Neil Woodford at his new venture, Woodford Investment Management, is very similar.
The receptiveness of investors and intermediaries to such ideas ought to ring alarm bells for other asset managers. They operate in a marketplace where customers are increasingly sceptical about the products they are served. Potentially even more problematic, those customers are better informed than ever before – and digital channels offer the opportunity both to become even more informed and to share knowledge with other investors.
In financial services, as in many other industries, the traditional remedy to consumer detriment has been regulatory intervention. But while regulators will continue to have a role – the FCA’s review of the asset management sector is certainly strident – financial services businesses are also increasingly being held to account by their customers, whose power has been hugely enhanced by the emergence of digital media.
The flip side of that threat is the opportunity it creates – exactly the sort of opportunity The People’s Trust is now preparing to exploit. Those asset managers prepared to engage with investors – to work with them, whether formally or informally – have a real chance to overcome the cynicism and mistrust that too often now characterises the relationship between asset managers and their customers.
None of which is to say, one way or the other, that The People’s Trust will deliver outperformance when it does finally launch. That is a debate for another time and place. But those in asset management who say that returns are, in the end, what matter more than anything, are missing the point. Unless you’re able to build credible and positive relationships with potential investors in your funds, they won’t ever see those returns.
Godfrey points out that his fund will be far from the cheapest product in the retail asset management space – and concedes that many passive funds offer much lower charges. But he’s convinced the strength of his all-round pitch to investors, built around a different type of customer relationship, will be enough to persuade people to pay extra for active management, rather than decamping to the cheapest trackers.
Incumbent asset managers should ask themselves whether they can say the same. Are you sufficiently connected to investors, both existing ones and those of the future, to convince them that your fund is worth paying for? How do your investor communications – in the broadest sense – articulate the values for which you stand? Are your conversations with investors sufficiently open and transparent?
Those questions are going to be increasingly important in the years ahead. The People’s Trust will not be the only new challenger to the traditional asset management model, particularly as the FinTech sector continues to develop. Even leaving aside the question of regulatory change, asset managers must not leave it too late to address these issues.
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