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A Question of Value – Securing the Right Investment Outcome  

In April of this year, the Financial Conduct Authority published new proposals aimed at improving transparency on the part of asset management firms when they report to their beneficiaries.  

In particular, the FCA focused on the question of whether or not asset managers were providing value for money in terms the balance between charges and their own operating costs and investment performance. Or to put it another way, the FCA was proposing that asset managers do a better job of explaining the value proposition of their products.  

Since then, the FCA has rowed back slightly and under pressure from the industry it has dropped the phrase ‘value for money’ from the proposals. But the underlying principles remain in that the FCA wants firms to demonstrate that their charges are justified.

In Context

The FCA’s move reflected the regulator’s own perception that some asset management firms were making persistently high profits that were not necessarily justified by the assets they were managing. According to figures published by the regulator, the average operating margin of a UK asset management firm came in at 36%, with some as high as 45%. This raised questions about price competitiveness in the market.  

So the FCA has called on asset managers to demonstrate that charges are reasonable when set against the quality of service and published what it described as a ‘non-exhaustive’ list of metrics to establish whether this was indeed the case. Those who fail to demonstrate that their charges are justified will face corrective measures.  

Bigger Picture

There is, arguably, a much bigger picture here. The investment ecosystem is diverse and ranges from financial advisers catering to retail investors through to private banks, wealth management companies and big asset management firms, often with a high degree of overlap between them.

The common factor is that investors are placing trust in those who provide advice and manage their assets.

There clearly is a question about value that can be couched in fairly simple terms as to whether the beneficiary feels that the outcomes justify the charges. But when advice is an important part of the equation, the true value comes from the ability of the wealth manager to fully understand evolving needs of the client at any point in time.  

This is often couched in terms of the investor’s appetite for risk and his or her requirement for growth and/or income at any given point. There are all sorts of individual circumstances and aspirations to be taken into consideration too – such as ambition to retire early or to ensure that children or grandchildren are secure. It may also be that an investor has a particular interest that needs to be factored in. That could be a desire to support startup companies or a particular focus on fun alternative assets such as antiques or wine. All this will feed into the investment strategy and the products chosen.   

Evolving Requirements

None of this is static. An investor aged 25 is likely to have priorities that are very different from someone on the edge of retirement. But even within a short period, priorities can change. Getting married, starting a family, selling a company and starting another one will all have an impact on the investment outcomes sought by an individual.   

So while it’s clearly important to consider charges vs outcomes, the concept of value goes much deeper. From an investor point of view, the test is whether or not a relationship with an adviser is delivering not only performance across assets but also a strategy that fully reflects the goal of the individuals.

When High Net Worth individuals connect with wealth management companies and private banks, that kind of value is usually what they are looking for – a bespoke and holistic service.

Every wealth management company has its own approach and – it has to be said – criteria for accepting clients. Arguably, as an investor, it’s important to work with a wealth manager whose style you feel comfortable with.  

Working With Members

For its part, The Route – City wealth club has a unique relationship with its investors. Rather than seeing them as ‘clients’, they are Members of a club and, importantly, they have often come to us via referrals by other club Members. It’s a distinction that represents something more than semantics or terminology. The ethos of The Route is to thoroughly understand its Members and offers regular reviews of their financial affairs and ambitions, and adjustments to investment strategy are made accordingly. Equally important, The Route – like any good club – offers access to investment opportunities that aren’t available elsewhere. These include exposure to successful property portfolios and opportunities to fund SMEs through the Route’s Private Debt Platform.

The Wealth Management Industry serves a community who rightly expect value. That value ethos should be integral to the relationship between advisers and those who trust their services.  



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