Earlier this year, in March, the United Kingdom’s Financial Conduct Authority (FCA) reiterated the regulatory requirement for firms to “treat customers fairly” and put the wellbeing of their customers at the heart of how they run their businesses.
Apparently the message did not fall on deaf ears since a few weeks later the investment management industry upped the ante by announcing their own 10-point statement of principles, declaring that investment managers will “always put clients’ interests first and ahead of our own”, thereby going further than the FCA requirement.
A lack of trust and confidence has been marring the industry for a while now. It is good news then for investors and the industry alike that the initiative has been met with considerable success. So far already 25 members, who together control €2.6 trillion worth of assets, signed up.
BlackRock and Vanguard are amongst the firms that committed to the following principles:
1. Always put their clients' interests first and ahead of their own
2. Take care of clients' money as diligently as they would their own
3. Only develop, offer and maintain funds and services designed to add value for clients and help them achieve their financial goals
4. Maintain and apply the investment and operational expertise needed to meet the objectives agreed with clients
5. Make all costs and charges transparent and understandable
6. Disclose to investors the source and value of any other material benefit they receive as a consequence of their role as investment manager
7. Ensure regular, timely and clear lines of communication with clients
8. Set out clearly their approach to the stewardship of client assets and interests
9. Maintain a corporate culture that sustains these principles
10. Work with industry colleagues and stakeholders to develop and maintain guidance on industry best practice
However, before the industry starts to congratulate itself, it's important to stress the fact that the success is mitigated at best. Several well-known asset managers did not sign the statement even though one could reasonably expect standards as obvious as "acting in the best interest of clients" to be adopted by all providers… even more so when such principles already feature in EU Regulations such as MiFID.
At the end of the day what matters most is how such a self-regulatory principle can be effectively enforced. After all, and lest we forget, asset managers have persistently been underperforming capital markets on average and even fail to deliver positive real returns in the long run, for individual investors.
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