For years people like me have been small voices in the wilderness telling anyone who’d listen how the active fund management industry has been fleecing them bare.

I have gone as far as to state that active fund management is, in terms of money removed from client’s bank accounts for nothing in return, the biggest mis-selling scandal this country has ever seen. It dwarfs PPI and Pension mis-selling combined – partly because of the sums involved but mostly because of the length of time it has been allowed to continue.

Now, the FCA has released its Asset Management Market Study Interim Report and, while it’s too early to say the regulator has taken the bull by the horns, we may conclude that it has at least gone through the gate into the bull’s field.

This report makes a number of damning observations about the shameful performance of the UK investment management business but, for the purpose of this blog I am going to open with this graph.


This is showing is the effect of the charges on a specified investment return over 20 years.
The red and yellow lines (so close together they are practically the same) are what you might expect from a low cost passive fund. The purple line is the return based on the charges of a typical actively managed fund – well, the charges they tell you about anyway. Add in the ones they don’t mention and now you’re looking at the blue line as a return. As the FCA report estimates, the passive investor is looking at 44.4% more.

Of course, that’s all very well if the investment returns of the passive and active funds were identical but, as we all know, two funds will deliver different returns. So by paying a bit extra, I get the benefit of the fund manager’s expertise and that will give me better performance and outweigh those higher charges, right?

Well, not according to the FCA. To quote their report: “Overall, our evidence suggests that actively managed investments do not outperform their benchmark after costs. Funds which are available to retail investors underperform their benchmarks after costs”.

So, there you are – pay more, get less.

But Ivor, you cry, surely you have over-egged the pudding with your fallacious remarks about ‘biggest mis-selling scandal EVER’. Well, stay with me and I’ll explain why I say that.

The FCA report cites these statistics:

  • the UK asset management industry is managing over one TRILLION pounds of retail investors money
  • 23% of those assets are invested passively
  • the average active fund annual charge is 0.90% and for passives it’s 0.15%

So, calculators out then. That’s £770,000,000,000 of money which is paying, on average, 0.75% more than it needs to – or, put another way £5,775,000,000. Now if, as the FCA suggest, actively managed funds are not giving retail investors better performance, that’s their pockets being picked to the tune of nearly six billion poundsEVERY SINGLE YEAR!

The FCA report is only an interim report. We have to wait until next year for the final document but, already it is talking about some interesting ‘remedial measures’ that it might consider.

It remains to be seen whether they carry this through (or whether lobbying from a multi-trillion pound industry sees them halted in their tracks) but, if nothing else, it’s a start.

If you want to see the full report (or if you just think I’ve made some of this up) you can find it here:



Nic Cicutti: The pensions boycott is well founded

No, it’s no ‘well-founded’ at all Nic.
It is, in fact, based on ridiculous notions of fear and ignorance (stoked handsomely by journalists, I might add). Let’s consider:

Numbers of individuals contributing to a personal pension reached a high point of 7.6 million in 2007/08, it dropped to 5.3 million by 2011/12“.

 When you effectively slash the income of the people that were selling them (which is what Stakeholder pensions did) what would you expect? Well, if you were Blair and Brown, the answer is you’d expect people to rush out and buy pensions of their own volition because they have now been made such good value. Well, that turned out okay boys, didn’t it

 “investing in something they understand and feel they have some control over, regardless of the risks

 The key word in that passage is ‘feel’. People feel they have control when they are driving their car. That’s why car travel is perceived to be less worrying than air travel – where you have no control (because you have ceded it to an actual professional). We all know which mode of transport actually IS the safer though.

 “Until advisers and providers start to offer safer, easy-to-understand products with low charges, the consumer boycott of personal pensions will continue“.

 Pensions ARE safe (certainly compared to paintings). Charges are now obtainable that ARE (almost unbelievably) low. As for the complexity, that’s the fault of regulators and legislators – not providers or advisers.

 If consumers ‘boycott’ pensions, more fool them.

 I have no sympathy for people whose foolishness is of such a magnitude that they would choose to listen to sloppy, lazy journalists (Step up Channel 4 – you know what you did) than qualified professionals. As far as I am concerned, these consumers are no better than the idiots who eschew their GPs advice in favour of some wacky ‘alternative’ medicine. Those people will stay ill and these people will retire poor.

Sorry to ‘bore on’ about this but it’s exactly the kind of comments made here by Darius McDermott that…well, they just irritate me to the point where I simply cannot stay silent.

The industry needs to focus less on costs and more on total returns” he says. Yes that’s true but since costs are known (well, they could be if managers fessed up to what they are actually are) and the other component of total returns – i.e. future investment growth – can only be guessed at with a level of accuracy which more properly belongs to the infamous ‘dart-throwing chimp’, then focusing on costs is the obvious thing to do.

So, the answer to his question “Can we stop focusing totally on charges?” has to be ‘no. not really’. Because what else is there than can reliably be used as a measure?

Oh wait. Reading on, Darius’s answer becomes clear. It’s those “lots and lots of good active fund managers who perform well after all these charges are included“. ‘Lots’ would be a stretch. ‘Lots and lots’, however, is testing my credulity to way past breaking point. Have you been reading the SPIVA reports Darius? Fund managers who are consistently good (as opposed to having a few lucky years here and there) are only slightly less rare than virgins in a maternity ward.

He goes on to suggest that “There is good active management and this continued bombardment of charges commentary is just noise“. Afraid you have transposed things there, old chap. The charges are the signal, not the noise. The ‘noise’ is, in fact, the megawatt output of the investment management industry (and those advisers who are their willing stooges) trying to sell us the idea that they can beat the markets.

Like all the best comics though, he saves the biggest laugh until last – with this gem “We can find managers who after all these fees can consistently beat the benchmark and index

Really? Can you? Then why not arbitrage them against the index, leverage up the position to the hilt and retire to Panama – hell no, why not BUY Panama? You’d be able to afford it in a few years if what you say is true.




Oh, here we go again. Yet another investment consultant trots out that same tired old analogy between investment providers and supermarkets. Here’s what Graham Bentley has to say regarding the, increasingly desperate, attempts of fund managers to obscure their charges.

“Most companies do not declare what it costs them to administer their business. Tesco doesn’t tell you how much it spends on every bit of the business. I’m not sure what marginal benefit there is for customers to make their decisions on a fifteenth of a basis point on varied underlying costs.”

Graham – please do stop with this ridiculous Tesco comparison. It is (and always has been) a complete red herring.

Tesco don’t need to give you a breakdown of costs because the products themselves exhibit complete cost transparency. When I buy a tin of beans, I know what I will be paying and I know, with a pretty high degree of certainty, what I will be acquiring for my money.

.With a fund, however, the picture is very different because what I receive (i.e. the gain on my investment) is not known to me when I make the purchase and, because that return is directly affected by the charges levied, I do need to know exactly who is taking what away from my fund.

If you want to use a supermarket analogy, try this one on for size.

Tesco sell you a tin with ‘some beans’ inside. You don’t know how full the tin is until you have paid for it and got it home. The amount of beans in any particular tin will depend upon the costs Tesco incurred getting that individual tin to the shelf.

In that situation, I suspect consumers would be much more interested in a breakdown of Tesco’s costs


Considering how much companies go on about this (we’re customer focused, we are 100% committed to our customers, we are completely ‘customer-centric’ etc etc etc) it’s astonishing how utterly awful so many of them are at delivering it.

So, here’s the Park Financial ‘easy guide’ to how to actually ensure good customer service happens.

1) Take every member of your staff aside and drill this simple concept into their head. IF A CUSTOMER HAS A PROBLEM WITH MY COMPANY’S SERVICE, WHAT CAN I DO TO SOLVE IT

2) Keep hammering that point into them until they totally get it. Make sure they realise that it’s not ‘what can John do to help when he gets back from lunch’.
It’s not ‘what can XYZ department do to sort this out’.
It’s not ‘I’ll email Tom about this. He can deal with it when he’s back next week’

It’s what can YOU do about it? What can you do RIGHT NOW?

3) If you have some staff that can’t or won’t absorb this simple instruction, sack them. Get in replacements who can

If you do that and if every man and woman on your team abides by it, then, my children, you will have good customer service.

If you don’t, all you have is a stupid ‘mission statement’ on a whiteboard in head office.

That’s what we believe here at Park Financial but, clients, you can help us here too.

If you find we haven’t lived up to this standard at any time, let us know. We won’t have meant to fail you. It will just be that the particular ‘way to help you’ didn’t occur to us on that occasion.
If you tell us, we’ll know better for next time

3 years ago, the financial regulators took a decision to ban commission payments on the sales of pensions and investments.
On the face of it, this was a great idea because there was little doubt that the commission arrangements allowed for all manner of sharp practices to take place.
The banks (never shy about a bit of that themselves) were horrified. Without all that easy commission on the table, how would they continue to sell their wares. The answer, of course, was that they wouldn’t. So cue a mass exit of banks (who probably found that LIBOR-rigging was much more profitable anyway) from the retail financial services market.
Great news. Cowboys rousted out and everyone’s happy, right?


Because the result of this massive drop in adviser (aka salesman) numbers was that many people now found they couldn’t get any advice at all – or, if they could, they simply couldn’t afford it – and since buying a savings or pension product is hardly a purchase to get the pulse racing, people just didn’t bother. These people began to be known as the ‘financially excluded’ and, seeing what was happening to them, the Government began to realise that, sometimes, even weak advice can be better than no advice.

So, the talk now is of bringing commission back – a mere three years after it was shown the door.

Good thing or bad thing?

Well, as for the banks, they will be back selling some people unsuitable products – of course they will. That’s just what they do. But, alongside that, they will also be selling a lot more people products that actually serve them well.

This, then, is the dilemma that legislators have. If the price of nine people being insured, saving money, funding pensions etc, is one person being sold an unsuitable product, is that worth accepting?

Well, even though it is painful to contemplate the grasping fingers of avaricious banks (which will already be twitching with excitement), given that the one person would, on discovering their banks chicanery, have access to redress via the Financial Ombudsman Service, I would have to say yes, it probably is worth it.

Yesterday found me embroiled in a lengthy debate with an investment analyst. Now, let me say, straight off, such chats never amount to my favourite conversations – simply because the combination of his role and my views sets us, inevitably, on a collision course right from the off.

That said, yesterdays adversary is as friendly and affable a chap as I have encountered in his field so I guess, if I had to have this particular dialogue, better it be with him than any other.

Still, after the best part of an hour, we had managed to find scarcely a scrap of common ground – but the call ended in good spirits anyway.

I have no doubt that my adversary utterly believed in the opinions he was holding forth. There is not, for one moment, a thought in my head that his enthusiasm was feigned in any way. No. His conviction is, I am sure, absolute  – yet this is in spite of him being unable to offer one shred of evidence to support his views.

Only on later reflection did it occur to me that this must be how Richard Dawkins would feel after a lengthy discourse with Archbishop Justin Welby.

How, I wondered, could he cling so doggedly to this belief that investment analysts add genuine value in the process of fund selection in the face of, well, zero hard facts that prove it so?

Of course, the behavioural psychologists have the answer.

That belief system is his whole career. To abandon it would be to abandon his entire professional life. To abandon, in effect, himself. Even to question it as anything other than an unassailable truth would produce in him a cognitive dissonance with which few men could comfortably exist.