Saracen fund manager Graham Campbell has met a lot of wealth managers in career spanning three decades.
However, his recent roadtrips have giving him cause for concern over the wellbeing of this discretionary community.
At this time of year, clients are beginning to open their diaries and meet fund managers, either for an update on their investments, or to hear more about a particular strategy they are considering.
It is early days, but I cannot remember encountering so many wealth managers complaining about job dissatisfaction in my 30-odd-year investment career.
Perhaps the seemingly unending Brexit negotiations and raised levels of market volatility have played their part in depressing spirits. This is usually an upbeat and positive industry, but wealth managers, particularly the older, more experienced ones, appear near breaking point.
Many have had enough and are looking for some sort of exit strategy. There is no single reason for this pessimism, but several comments were echoed.
Many feel they are being pushed into being asset gatherers, when their clients want them to be investment managers. To be fair, this is an issue for many quoted businesses – fund managers, as well as wealth managers.
There is pressure from investors, who often have a shorter investment time horizon, to be bigger, rather than better. Investors in these businesses want growth, and senior managers have targets that often include delivering this. These targets are promptly disseminated down the management line.
As a result, some senior wealth managers with large books of business, are encouraged to acquire more clients in addition to servicing their existing ones.
When markets are strong, this task is usually much less onerous, but in these uncertain times, it can take considerable time and effort.
It is not difficult to imagine the pressure on wealth managers trying to manage these conflicting objectives. In addition, taking on a new client adds considerably to the administrative burden many wealth managers are also struggling with.
Quarterly reporting is also making wealth managers’ clients more short-term in their thinking. Prior to Mifid II, most clients would receive a report from their manager every six months and would formally meet at least once per year.
With clients now formally receiving reports every quarter, they are more likely to compare valuations and subsequently become more short-term in their investment planning.
I have also seen this on many occasions over the years with fund managers, and this explains why I do not have a live price system on my desk.
More often, the issue is the response from the client, who typically calls to say, ‘that’s bad news, what should I do?’. The reply is: ‘Nothing! Markets are volatile, we take a long-term view and they still seem attractive’.
The client then reasonably asks: ‘So why did you write to me?’ Our clients have said that this is causing confusion and, again, is encouraging short-term behaviour.
Centralisation on the increase
The burden of regulation is frequently described as suffocating and taking an inordinate amount of time. A common complaint from our clients is they are spending most of their time doing administration and have less time for investment work or clients, both of which they enjoy.
There is increasing pressure for wealth managers to stick to an approved buy list of funds, so less discretion is permitted. To roll out a preferred fund across clients requires liquidity, and this is often wrongly equated with fund size.
Qualifying rules for a minimum fund size have steadily increased – it used to be £50 million, but it is rarely less than £200 million now.
For example, the TB Saracen Global Income and Growth fund is a modest £125 million and invests in global businesses with an average market capitalisation of £65 billion.
It is estimated that in one day 97% of the portfolio could be liquidated with 20% of average daily volume, yet it is still too small to qualify for many lists.
The strength and independence of our clients is important for our business. The pressure to standardise appears to favour the large and disadvantage the small.
It has become harder to recommend a smaller boutique fund manager, despite a much clearer alignment of interest. The barriers to entry have been raised for all, which will reduce choice over the longer term.
The implementation of Mifid II has produced some presumably unintended consequences. In particular, at a time when experience should be at a premium, in order to comprehend markets, take a long-term view and reassure clients, the wealth industry is likely to see an exodus of experienced practitioners, and the remainers will have to choose between a smaller, less differentiated pool of funds.
Graham Campbell (pictured) is chief executive of Saracen Fund Managers and co-manager of the TB Saracen Global Income and Growth fund, which over three years has returned 45.2% versus a peer average of 34.1%.