As we see the extreme measures being taken to manage the Woodford fund fall out, I thought I would take a moment to share a few thoughts.
One of the things that has never sat right with me has been the conflict of interests in the recommendation of funds by fund rating firms! Surely it is much better to use a firm who is truly independent and sits on the same side of the fence ensuring there is no compromise in terms of product selection.
Putting the client outcome and mandate first when selecting a fund gives the best probability of success. This ensures the fund is used as intended based on a client mandate or outcome, as opposed to being selected based on the relative peer group performance or a star manager bias.
It tarnishes the name of independent research when larger and well-known research players downgrade or remove funds post event, when most of the damage has already been done.
This has always been the risk from those companies that rate funds and those who get paid by the fund groups, but still class themselves as independent or unbiased. If a client outcome or mandate is not the prime concern how can you ensure that the products selected are ever going to be appropriate and truly independent.
With powerful technology augmenting human input, applying a rigorous and disciplined approach, that if managed well, will often lead to the detection of issues and anomalies before they become detrimental to the investor.
The other issue for me has been the pressure applied by some financial adviser firms to outsourced investment groups to include funds or fund managers based on past performance. A good example of this is of course the time when Neil Woodford left Invesco to setup his own shop.
This is not the first time that financial adviser firms have been caught with the demise of a fund that appeared on everyone’s panel. For those of us who are old enough, I remember the time when Henderson’s Technology Fund was the number one choice before the dot com crisis and we all know how that ended.
Times have changed and there is much more support available in running portfolios or choosing funds, particularly in terms of technology. Why not reduce some of the human element, which many consider to be the biggest risk.
So, think about Independence, Technology, Investment Processes, and organisations that believe in what they do and are not influenced by their clients or money.