"Whether [it is] through technology, tax, or investment structure, simplicity will help the profession both survive and thrive," says Richard Philbin, Chief Investment Officer at Wellian Investment Solutions. Speaking to him about where he thinks the future of asset management lies, he tells us success will only be found in simplicity.
When you are thinking about the future of this wonderful industry of ours and having the ability (albeit in article form) to consider the future of it, the initial thoughts are “I’ll create a wish list”. Unfortunately we all know it isn’t that easy and some degree of sanity will be needed. I’d like to caveat this piece by saying that I’m writing this from a UK wealth manager’s perspective, with clients predominantly in the UK and using collective investments as the tools of choice when it comes to portfolio construction.
“Future” is an incredibly subjective word; how far forward are we looking is a question I also find myself asking and a realistic thought must be 5 – 10 years.
First, it makes absolute sense to me that technology will take a much greater role. Whether that be the increasing use of an app on your mobile device; interactive online valuation tools, greater access to performance statistics for DIY research or computer generated risk/return models for instance. It also makes sense to me that all financial instruments are consolidated (maybe even in real-time) onto a single platform. This platform will include all financial instruments - ISAs, pensions, investments, bank balances, premium bonds, mortgage payments, insurance policies, income and expenditures and the like. At the moment it’s nigh on impossible to get a single valuation of an individual’s wealth and this needs to change. There are so many situations where an individual will need to take control of their finances (and whether that be directly, or intermediated) and yet there are too many reasons and opportunities for a person to bury their head in the sand and put it off until tomorrow.
I would love to see the essence of finance / financial planning as part of the school curriculum. A person’s wealth and future wellbeing is massively important and yet not taught. Picking up the odd bit of help in the Sunday papers is no way to become financially independent. If this were the case, the future and importance of Asset Management would be assured.
Technology will also be a greater part of asset management itself. We are already seeing big data take a greater role in a large number of fund management businesses. Companies such as Goldman Sachs, JP Morgan and BlackRock have invested heavily over the past couple of years in the search of alpha. Many more will follow suit. Technology will also be a key driver in client portfolio choices - the rise of passive instruments, ETFs and lower cost smart beta products will no doubt win more clients as time progresses. I read with interest just this week that there are 60x more indices in the world than listed stocks. That proves to me at least where the profession is going.
The industry has, in my opinion, too much paperwork though and this is a major deterrent to the growth of it. Compliance is ever pervading and increasingly complicated. The need for financial services and wealth management products has never been higher and will only increase as demographics demand it and the lack of regulated professionals to service it widens. Combined with a degree of difficulty to actually participate through reams of paperwork and it isn’t surprising that financial services are considered only for the rich.
Many of the products and services presently on offer are too complex and this needs to change. There are too many differences as well when it comes to pricing - some funds operate on a single price basis, others have bid/offer spreads. Some are index listed and therefore have different charging structures and prices struck at different times of the day. Income units, accumulation units, swinging prices, Unit Trusts, UCITS, SICAVs Investment Companies etc all create confusion and nervousness in clients.
In the future, it would be great to have tax treatments of investment products aligned. I would really like to see capital gains tax and income tax harmonised. This would create many more opportunities for investors, advisers and clients alike when it comes to meeting financial goals. Converting capital gains into income with no worries for the tax return means investors can get more broadly diversified portfolios whilst providing potentially less volatility thrown into the pot.
Ultimately, all the suggestions put forward are requesting simplicity. Whether that be through technology, tax, or investment structure, simplicity will help the profession both survive and thrive. Having owned many computers over the last 35 years or so, one thing that no longer comes in the box are reams and reams of paperwork telling you what to do and yet the product itself has gotten more complex. In my ideal future of the fund management industry, it’d be nice to know you can top up your pension via your debit card, switch your ISA whilst waiting for the train and know that your life goals are only W years X months and Y days away if you continue to save and invest £Z. We work in a fascinating profession yet we make it (directly or indirectly) too complex, scary and uninviting. This needs to change.