Value - so much more than a sausage machine
Just over three months to go until the first Value Assessments are due from asset managers. This new requirement has been imposed by the FCA after the not unreasonable concern that competition is not working as well as it should be for investors.
Value is a nebulous topic. It's not objective, nor is there a formula. The regulator has been quite clever in proving a "non-exhaustive" list of things to consider - but there is no final tick box approach.
The data sausage machine
In an industry dominated by mathematicians and actuaries, there is a natural urge to look to data alone to answer the value question. If we stick a load of numbers in the sausage machine and turn the handle, voila, out pop our lovely evidential value sausages. Check there are no outliers, add some ketchup and proudly serve. But this is not the full picture. It has always seemed entirely logical to me that we cannot understand value without first asking those who pay the fee. The end customer.
To understand people's perceptions of value, I've found that we have to understand fears and concerns. The biggest fear for most consumers is that their money disappears. Forget benchmarks and objectives. This is before we even get to that. I'm talking fraud. Icelandic banks. Market implosions. These commonly-held fears about a poorly-understood industry drive one of the major value factors. This is peace of mind, trust, perceived experience and expertise. Brand.
We have asked thousands of investors about what they value about specific investment brands. For some, it's all about performance. For others, it's all about professionalism, communication and experience. "I trust them" and "I feel like I'm in good hands." This is a nuanced and multi-faceted story which fund data alone does not capture.
And a high-stakes game of chicken
Most fund managers are concluding their value frameworks and how they will communicate this to the Board. But the Boards are starting to ask the not unreasonable question - how do you plan to share this with customers?
And this is where the almighty game of chicken begins. It is deeply ironic that an exercise born from concerns about a lack of competition is now suffering from said lack of competition when it comes to reporting the results. The fund management industry lives in a world of benchmarks, clustering and not being 'too weird'. Trouble is, there’s no precedent and no-one to copy yet. Dilemma!
This week I watched a documentary about Margaret Thatcher and found myself wondering how she would have fared in the democratic, unkind and unforgiving world of social media. In the same way, the old-fashioned fund management industry cannot remain immune from the world of public ratings, likes and reviews forever. It always strikes me as interesting that so many active managers who argue passionately against following the herd, are corporately and behaviourally passive.
The value assessment is surely an opportunity to be clear. To challenge. And to have a more grown-up conversation with customers. If you ask your customers what value means to them and report back against that - who cares what anyone else is doing? These value assessments will be public. They will be condensed. And probably over-simplified. But that is the price of playing in the retail world.
We have conducted brand-specific research into value over the last 6 months with over 3,000 investors.Take a look at how we can help you understand whether your customers think you are delivering value.
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