Richard Bacon, head of Sales & Business Development, says as we are no longer in a ‘stimulated’ investment environment, a number of model portfolio service investment strategies will come under real stress for the first time.
Over the last few years, low-cost model portfolio service (MPS) solutions have thrived, and quite understandably.
Investors have been able to access a “managed” investment product, dominated by passives, at rock bottom fees and look thoroughly heroic. It’s been a nirvana period. Clients are happy, regulators are happy and investment management business are very happy.
But this environment was not normal; it was “stimulated” and therefore provided the perfect backdrop for the regulator to focus on “fees” above all else with the commercial teams at many investment managers happy to oblige. “When all assets are rising on the tide, it becomes very difficult to differentiate one investment manager from another based on their performance alone. Unless of course you are willing to take excess risk, and what would be the point in that?
This presents a challenge for marketing departments tasked with making their business stand out from the crowd, and as a result “price” becomes the primary battleground. It’s the ever-decreasing fee that grabs the headlines, whilst the market does the hard work in the background.
2024 will, I suggest, put a number of these MPS investment strategies under real stress for the first time, prompting some uncomfortable questions between client and IFA, and IFA and MPS manager. Whilst well intended, the FCA’s unwavering focus on cost and fees has had some unintended side effects which thus far have been very successfully concealed by the market to date, so I expect 2024 will provide some clarity. Performance net of fees is a mantra I was taught early in my career and its resurgence in the mind of the end investor is long overdue.
Whilst the macro-outlook for 2024 is unpredictable, I feel confident that it will provide an environment for skilled investment managers to add considerable and demonstrable value for their clients. Protecting their capital, providing reassurance, finding safe havens, exploiting timely opportunities – the cream will once again rise to the top.”
