Back in the 1990s, the share-trading website E*Trade used to run a television advert featuring a cocky young financial adviser counselling a grey-haired client.
“You have a retirement plan?” the client asks. “Oh sure,” says his adviser. “Invest, get rich, retire at 45.”
“I’m 58,” responds the client. “Oh!” says the broker. “Your retirement plan.”
As a satirical take on the self-serving fund management sector – which may seem dull but facilitates important stuff such as saving for old age – that just about sums everything up.
The industry has always seemed to represent the City’s closest point to embracing Marxism, in that it often appears to exist mainly for the benefit of its workers.
Fund managers trouser fortunes even when they are diminishing your nest-egg. Last year, a study of actively managed UK equity funds found that nine out of 10 underperformed the market – which is a bit like being paid to get to win the race to the airport departure gate, stepping on a travelator and then arriving after everyone else.
But better than the stats are the actual examples of the City’s humiliating inability to pick winners.
A few years ago, the Sun newspaper ran a share-tipping competition pitting 100 readers against a bunch of City experts, the office cat and a Page 3 model. No one was surprised when the model won and a City trader came 60th (although the cat was presumably gutted at only being placed 41st). But the episode illustrates how the fund-management industry has been a laughing stock for aeons. So long, in fact, that even the Financial Conduct Authority has noticed.
Earlier this month the City regulator outlined a series of new rules for the industry, including such startling requirements as fund managers having to make an “annual assessment of value” as part of their duty to act in the best interests of their clients, and making technical changes to improve the fairness of how fund managers profit from investors buying and selling their funds.
All of which might get an airing again this week, as the sector will be in the news, with the likes of Jupiter Fund Management and Ashmore scheduled to announce some numbers.
After a decent year in 2017, Jupiter said last month that it had been hit by customers pulling money out of its funds and by underperformance in the first quarter of 2018. Shares in the company – which has long been associated with the UK’s retail investors – are down around 25% this year, while around £1bn has been pulled from two of its flagship funds by clients.
There is always some excuse for poor performance (Jupiter’s was that other funds had taken more risk) but the truth is that, with a few notable exceptions, fund managers are better at charging fees than picking shares. As another E*Trade ad from the last century pointed out, if your fund manager really was so talented at investing, he or she would probably not still be at work.
However, there are some who still covet the likes of Jupiter.
Last week the FCA issued a warning that “fraudsters are using the details of [fund management] firms we authorise to try to convince people that they work for a genuine, authorised firm” and identified scammers using a “clone” firm called Jupiter Fund Management.
Apart from the oddness of pretending to be a firm in the middle of a bad trot, the notice also provokes another thought among City wags: unless Jupiter fund managers up their game, punters might just be tempted to give the scammers a try.