One in five asset management mandates highly unsatisfactory

When asset owners were asked about the value for money their managers provide, almost 20 per cent of mandates were described as highly unsatisfactory.

With more than £1tn of UK workplace savings managed by asset managers, and many savers struggling to reach an adequate retirement, the need for good value investment services and transparency over how consumers’ money is being managed is becoming increasingly critical.

Last year, the Financial Conduct Authority’s cost transparency initiative launched templates to tackle the asymmetry of information between asset owners and the fund managers they invest with.

There’s a strong bifurcation between those who do it well and those who do it badly

Dr Chris Sier, Clearglass

But transparency tool Insticube’s findings reveal that some managers are still not meeting client expectations across the broader theme of value for money. Just 18 per cent of asset owners are highly satisfied with their manager.

The view across the industry has revealed a split between managers who are consistently highly rated by clients, in some instances even when entering new asset classes, and others who are serial laggards.

Insticube asks trustees to rate the asset managers they employ across a range of factors, leading to a score for that mandate. They can then compare their satisfaction with other clients of that manager, and to other managers offering similar products.

Meanwhile, managers can pay to view their data and improve their services.

“The sell-side broadly has controlled the information flow. What we’re doing is providing asset owners with a platform with which they can share intelligence about asset managers they employ,” said Tim Brown, head of key relationships at Insticube.

Value driven by many factors

Mr Brown recognised the importance of cost in the value for money equation, but said that alongside performance, anecdotal evidence suggests that proactivity, collaboration, and even managers not trying to sell products clients do not need could boost perceptions of value for money.

“The most successful managers have understood this and if you ask their clients they’ll talk about proactivity,” he said.

Another point of difference is on environmental, social and governance risks. “Some managers think, laughably, that all they have to do is give someone the job of ESG,” Mr Brown said.

Increasing the transparency and information available to trustees gives them the opportunity to make better decisions when choosing the right fund for them. In turn, asset managers can improve their relationships with trustee clients.

“Some of the managers are using this data intensively and having a material impact on outcomes with their clients,” Mr Brown said.

Commitment to transparency signals value

Arguably, the first key element in assessing value for money is having an accurate picture of the costs pension schemes are incurring.

Dr Chris Sier, who led the FCA-backed Cost Transparency Initiative in releasing cost-disclosure templates earlier this year, agreed that while cost is only one factor, transparency in disclosure can act as a good signal of overall commitment to providing a good value service.

Managers who have been engaged in disclosure and helping clients understand total costs, “tend to be the ones who get good scores” in terms of customer satisfaction, and often perform better, the Clearglass chairman said.

“There’s a strong bifurcation between those who do it well and those who do it badly,” he added.

Just as trustees expect fund houses to assess governance at the companies they invest in, Dr Sier said asset manager culture is an important driver of value for money. In emerging analysis Clearglass has undertaken with Insticube, those managers offering good net performance and client satisfaction “also happen to have some of the best gender pay gaps of any out there,” he said.

Small schemes lack leverage

Richard Butcher, managing director of professional trustee company PTL, said it was unsurprising that a proportion of trustees are dissatisfied with their managers

He assesses managers according to objectives on net return, risk, liquidity and ESG. “If they aren’t delivering to those objectives, then by definition I’m unhappy with them,” he said.

Mr Butcher added that trustees could not be blamed for enduring dissatisfaction with some in the asset management industry.

“They have no leverage really over the asset managers they use other than the hire and fire function,” he said, explaining that for most schemes their small scale means terminating an underperforming mandate, while beneficial to members, is unlikely to drive cultural change at the manager level.