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Given the national coverage of the suspension of the Woodford Equity Income fund, and the involvement of HM Treasury and the Financial Conduct Authority, it is no surprise that the wider asset management industry reputation will have taken a hit.
However, the first Private Investor Pulse Study carried out by Research in Finance in July has revealed some shocking figures; three quarters (74%) of private investors surveyed said the news about Woodford Investment Management had negatively impacted trust in the asset management industry.
For background, the firm suspended its Equity Income fund in early June following numerous redemption requests amid increasing liquidity concerns as manager Neil Woodford moved to cut the portfolio’s position in unquoted holdings to zero
The suspension led to wide criticism with Nicky Morgan, chair of the Treasury Select Committee at the time, writing to the FCA and platform giant Hargreaves Lansdown. The latter came under fire for continuing to back the Woodford funds amid a prolonged period of underperformance.
In the Pulse study, 41% said they are either currently invested or have previously invested in a fund from Woodford Investment Management, and 32% of these said they had been impacted by the suspension of dealing in the Woodford Equity Income fund.
Furthermore, 87% of investors who had purchased a Woodford fund based on them being a featured in a platform shortlist/select list said it had negatively affected trust in platform shortlists/select lists.
Specifically, over 40% of investors that had purchased a fund run by Woodford Investment Management said they had done so because of its place in Hargreaves Lansdown’s Wealth 50.
This is the second highest factor to contribute towards their decision to buy, with the top reason being Neil Woodford’s reputation, which was cited by 79% of private investors.
Other popular influencers to include Woodford funds in private portfolios include performance figures (cited by 25%), the finance section of newspapers (22%) and ratings (16%). Meanwhile, arguably some of the most important documents are left behind in consideration with the funds’ prospectus, factsheets and Key investor Information Documents (KIID) were further down the list and reports/accounts only received 1% of investors’ votes (see chart).
Although HL removed the funds immediately after the suspension and dropped the platform fee it charges for holding the fund, while calling on Woodford to also suspend its own fees but this was clearly not enough for some private investors.
However, more encouragingly, attitudes to asset managers overall, however, were more balanced. In response to the statement ‘I believe asset managers have my best interests at heart’, 33% of private investors agreed and 33% disagreed, while 34% neither agreed or disagreed.
Research in Finance launched the Private Investor Pulse study in July 2019. It is an online quantitative study surveying 307 private investors. If you wish to access the panel to discover insight for your own business do contact the team.
In the Investment Association’s Annual Survey 2019, released this month, CEO Chris Cummings identified four themes for the industry in his foreword.
Firstly, the importance of the industry retaining its “international competitiveness” particularly as we are on the brink of exiting the European Union.
Secondly, the “urgent theme” of moving towards more responsible and sustainable investing, as echoed in RiF’s Responsible Investment Review and thirdly, the challenge of encouraging individuals who are living longer than ever to save more for retirement and making sure the “investment engine” is ready to deliver for those outcomes.
Finally, Cummings highlights we are in the “most significant period of change” and with “an unprecedented focus on competitiveness” as well as “transparency of products and services” must come the reassurance the industry’s culture is in line with the “growing responsibilities and public scrutiny”.
Taking the above into consideration, one over-arching theme that leapt out was the fact the industry needs more diversity and it needs it more than ever.
Reflecting back on the above themes, the City needs to be able to retain the talent it has attracted from all over the globe in a post-Brexit world. It also needs to make sure it is responsible in its investing and ensuring equal opportunities for all, while providing the companies that are willing to be diverse and responsible the investment they need to expand their businesses further.
Innovation is certainly required to tackle the retirement challenge and we know that moving away from the group think mentality and encouraging ideas from all sorts of backgrounds (personal, professional, social…) will mean every avenue is explored to ensure we are product-ready for an aging population.
Lastly, the fact that Cummings refers to “the critical area of ensuring great diversity and inclusion” when he makes the point on the “question of culture” emphasises the industry body agrees.
There are only five more specific references to diversity in the report, but many more points highlight where investment professionals are encouraged to think outside the box (NB there is no encouragement to simply box-tick!).
Indeed, an individual at one of 66 IA member firms that participated in the Annual Survey said: “Asset management is no longer just about running the money and talking to investors. It requires huge investment in technology and a different way of thinking, including making the world a better place. You’re going to need different skill sets and different types of people that we never thought of hiring before.”
With initiatives such as Investment20/20 and some asset managers reassessing their recruitment practises, as well as their ability to retain and promote talent already honed in their firms, the industry is making solid moves in the right direction.
Let’s hope that asset managers take into account what is at stake if they do not address and fully embrace increased diversity in their agendas and approach so that the industry really can emerge, in Cummings’ words, “ready for this new environment”.
Research in Finance will be carrying out a study on diversity in asset management including looking how cultures within firms need to change in 2020. For more information to be involved, please get in touch. NatalieKenway@researchinfinance.co.uk