It’s that time of the year when people make new year resolutions. For a lot of people working in financial services, these lists will probably involve work around MiFID, GDPR and all the other regulations set to take effect in 2018. But asset managers also need to be aware of what the Financial Conduct Authority (FCA) has in mind.
This was the theme of a recent event hosted by the Financial Services Forum, where the experts present discussed the implications of the regulator’s market study into the asset management industry which was published last summer.
Putting the message out
The FCA’s stated focus is on ensuring clients get the best outcomes. Panellist Chris Curtis (from Asset Risk Consultants) said that while most asset managers are doing this, they are struggling to communicate it to clients. By being more forthright in explaining how they provide value to clients, Curtis said, asset managers can go a long way towards breaking down the general inertia towards investing.
Is putting out more information the answer? As we said before, probably not. Would you swipe through a 50-page whitepaper on a smartphone? As technology has got smaller, so have people’s attention spans. So “less is more” may be a good rule to follow when it comes to content. Likewise, putting the message across simply is important so that as Curtis said, “people can actually use the information they get”.
Challenging the knowledge gap
Asset managers face a challenge when it comes to putting the message out: the general lack of financial awareness. Panellist Richard Withers – Vanguard’s head of government relations for Europe – said that “the FCA believes that investors don’t really understand what they are buying or what information they get from asset managers”. While the government needs to play a role here, asset managers can also do their bit.
Eschewing jargon, which can be baffling to outsiders, is important. Laymen would infinitely prefer “material in human language”, as Magnus Spence – the panel’s chair and the director of Spence Johnson – put it.
A different perspective can also add value here. Many people in the industry seem to assume that regular investors can comprehend complex financial terms. So, taking a step back and viewing the information from the perspective of end-investors can be beneficial.
While educating investors can help break down their inertia towards saving, Curtis emphasised that firms may need to tread a fine line when it comes to balancing marketing and education. This line could become narrower in 2018 once the General Data Protection Regulation and the revised Markets in Financial Instruments Directive (MiFID II) kick in, as we pointed out before.
Getting people involved
Curtis stated that one problem asset managers face when communicating is that they simply do not know where the information they circulate will end up – whether it will be read by sophisticated investors or those with little financial knowledge. Better understanding of – and engagement with – the target audience can help here. The increased product governance requirements under MiFID II will probably prompt asset managers to step up their efforts in these areas.
Increased engagement can also make investors feel more involved: according to panellist John Rowland, an executive director at Cicero, high levels of intermediation mean that most fund investors feel disconnected from what is going on behind the scenes.
More engagement can also help asset managers increase their focus on client outcomes – something the regulator is keen on. Withers believes such a shift also involves a change in the industry’s mindset – rather than pushing products, asset managers should encourage people to make the right decisions. This of course again means asset managers need to do more to put the word out – which the panel unanimously agreed on.
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