Investment: It's Time To Face The Music

It is inescapable: we live in a world in which numerous sectors, companies and individuals have to look at themselves and question whether they are still relevant to their clients. Some organisations are being more responsible, open and accountable to their stakeholders but in my view the investment and savings industry cannot afford to be any different.

We need to be part of this new drive for decent and responsible capitalism. But in this new mood, transparency has become simply a buzz word – practical solutions are what are needed, not just rhetoric – and this is what we are aiming to do. It is increasingly clear to the public that the investment and savings industry has lost sight of the responsibility it owes the people whose money it manages. Our industry has become one of broken promises and we need to work together to restore its reputation. We need to remember that it is not our money. It is our investors’ money; their money, their futures.

Too often we forget about the human impact of managing people’s money. We must not forget that often we are dealing with people at their maximum point of vulnerability; when they are anxious about their families and their futures, or about providing for their old age. We therefore need to act with integrity and accountability and provide clear, correct and accessible information so that clients can make informed decisions.

If this industry is to have any long-term future it needs to examine exactly what it is that we do? What can we do better? Are we good at communicating that? And, most importantly, are we rigorous enough in terms of transparency? It is disingenuous to say there are not transparency issues or that transparency would put off investors. The industry must stop using intellectually-bankrupt excuses or issuing misleading data, and instead repair its reputation and tell the truth. Unless we address these issues and find a serious and sustainable solution, much of the industry may well not be here in ten years’ time. This is compounded by access to information via the internet – meaning people will simply ‘do it themselves’.

The Investment Management Association (IMA) keeps publishing ‘independent’ research papers in its quest to portray their members as the fairest of all. But these reports tend to be self-serving, lacking in statistical interrogation and fail to place consumers’ best interest before their own. Their wrangling over 0.60% or 0.75% is really semantics and does not detract from four fundamental truths.

Firstly, consumers have the right to know the full likely costs of investing beforehand, so they can make a fully-informed decision. The IMA defends its stance by saying there is no ‘better measurement than net performance’ i.e. we’ll tell you the cost when you sell.

Secondly, the IMA logic is that it is preferable for consumers to see just 50% of the total costs but with total accuracy than be able to see 100% of the total costs but with 95% accuracy.

Thirdly, transparency does not equate to lowest cost but is likely to result in fairer, more competitive fees, which will benefit consumers.

Finally, most of the IMA’s research is all based on averages – the consumer never buys the ‘average’ fund, they buy a specific fund which may have both costs and returns different to the average. They are entitled to know the full costs of their specific fund irrespective of averages.

As the IMA chief executive now agrees with the True & Fair Campaign that, “Fund management has to be a transparent business. If it is not, investors will lose confidence and nobody wins”, it might consider moving from rhetoric to action by enabling a system that calculates all costs and fees including dealing costs, performance fees and initial charges in one easy-to-understand measure.

Furthermore, transparency means revealing what you own in full; the IMA members normally reveal this just once a year via the post. In the US, investors get at least quarterly full disclosure of holdings online and have done since 2004. Why are UK consumers being treated like second-class investors?

People are entitled to know the full cost so they can make a rational investment decision before they invest. At present the investment and savings industry is little more than buying a lottery ticket and hoping you win. It is time to restore confidence and encourage saving and investing; it is time for change.

Gina Miller spearheaded the True & Fair Campaign. For more info visit: trueandfaircampagin.com