Good reads from around the Web.
This week saw the Financial Conduct Authority (FCA) publish the interim findings [1] of its deep dive into the asset management industry and how it treats its customers.
With the report weighing in at 200-pages, I’ve only been able to superficially skim it so far for myself.
But pundits and campaigners seem pleased.
Andy Agathangelou, founding chair of the Transparency Task Force group, says:
“There’s not been a chance for a detailed analysis yet but their opening comments are extremely significant […]
They are even talking about the idea of introducing an all-in fee to make it easy for investors to see what is being taken from the fund. Wow, this would be a seriously progressive approach to costs disclosure and is exactly the kind of costs regime that is needed.
Let’s hope this helps avoid the ‘patchwork quilt of protocols’ that trade bodies seem to prefer over market-wide regulation.”
You can read Mr Agathangelou’s comments in full at The Evidence-Based Investor [2].
The mainstream press has also begun digging into the report.
Citywire flags up [3] the finding that so-called ‘Best Buy’ and ‘Rated’ funds touted by distribution platforms typically fail to beat the market:
“…although funds on ‘buy’ lists did better than non-recommended funds, in common with the vast majority of funds they did not perform better than stock market indices, such as the FTSE All Share, once charges were taken into account.”
And in a separate article [4] it homes in on talk of that all-in-one fee:
UK fund managers don’t compete with each other on price, which means investors end up overpaying on fund charges, the City watchdog has concluded
Following a damning review [the FCA] found that actively managed funds do not beat the stock market after charges.
It also concluded that the stated investment objectives and fee breakdowns for funds are unclear to investors.
The regulator is proposing asset managers introduce an all-in fee to improve the disclosure of costs that investors incur.
ThisIsMoney has published the most comprehensive recap [5] of the report’s findings. Handy for those of us who won’t get paid to wade through the 200 pages!
Shrink in the wash
Here at Monevator Towers, we can only welcome the FCA looking into the egregious profits earned in aggregate by the financial services sector.
Remember, active management is in practical terms worse than a zero-sum game [6]. The only group that benefits from its dominance are the managers themselves.
That’s not to say there is no role for financial professionals in the money matters of the person in the street. Some active investing will always be necessary to keep the market efficient (though most private investors can dispense with it) and financial planning has a place.
A right-sized industry would undoubtedly be far smaller than today’s, though. Which means we can probably expect it to fight the FCA on any radical changes.
Revolutionary Summit
Indeed, that’s the wet blanket I’d throw on this report. (I always have a supply of wet blankets to hand…)
You may remember how RDR [7] was supposed to revolutionize retail investing. It definitely made positive changes (getting rid of trail commission, for instance) but one can argue that many of the insidious costs of investing just migrated elsewhere.
Post-RDR, savvy Monevator readers who’d read up on index investing have perhaps found it harder to keep their costs at rock-bottom lows. I suspect the ill-informed masses were previously subsidizing cost-conscious passive investors to a greater extent.
A selfish quibble? Maybe, but the bigger point is that the sharks will always keep swimming when there’s this much money at stake. Self-education is the best defense, not regulation that tries to keep pace with them.
And that is the really big revolution of the past decade.
I mean, consider the Evidence-based Investing Conference that took place in New York last week. It seems that every writer and fund manager that we feature in Weekend Reading was there. (Sometimes it’s a drag being anonymous…)
Here’s a wrap:
- Josh Brown at The Reformed Broker [8] recounts his highlights.
- The bps and pieces [9] blog has summarized the day via a stream of Tweets.
- For those in a hurry – hey, that FCA report won’t read itself – the Blog of Newfound Research [10] offers four key takeaways.
Investors have wised-up to the most egregious nonsense peddled by the asset management industry, and the Internet makes that knowledge available to all.
It’s great that the FCA is wising up too. But most of us will keep doing it for ourselves.
Have a great weekend!
From the blogs
Making good use of the things that we find…
Passive investing
- The brighter side of rising interest rates – A Wealth of Common Sense [11]
- Financial lessons from the 2016 Presidential Election – Oblivious Investor [12]
- Why use factor-based funds? [Video, bit of a promo really] – Vanguard [13]
Active investing
- How to actively invest on just one hour a day – Gannon on Investing [14]
- Value looks historically cheap – The Brooklyn Investor [15]
- 3 super-high-yield stocks for brave investors [PDF] – John Kingham [16]
- The promise and perils of family group companies – Musings on Markets [17]
- Profit warnings: What should you do? – 7 Circles [18]
- BAT risks overpaying bid for Reynolds – The Value Perspective [19]
- Long-short funds have real-world issues [Academic] – Alpha Architect [20]
Other articles
- LemonFool: The new forum for Motley Fool refugees – LemonFool [21]
- How does diversification actually work? – Retirement Researcher [22]
- Are you on track for retirement? – AARP [23]
- Now that’s what I call Financial Independence: 6 – The Escape Artist [24]
- The difference between a statistic and a fact – Morgan Housel [25]
- Can a divided America heal? [Video] – TED [26]
Product of the week: Santander [27] is continuing to whittle away everything that made its 123 account a winner. The interest rate paid on cash savings has already been halved, and now it’s making its credit card less attractive, reports ThisIsMoney [28]. Cashback is to be limited to £9 a month from February, while those paying interest on their credit card debt (don’t let this be you [29]) will see the rate charged hiked from 12.7% to 15.9%.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1 [30]
Passive investing
- Swedroe: Another angle on factor diversification – ETF.com [31]
Active investing
- Bond rout sends 30-year US Treasury yields above 3% [Search result] – FT [32]
- Stock-picking pros beat the indexers [Sort of] – Bloomberg [33]
- The low-volatility trade is over – Bloomberg [34]
- UK property stocks’ rollercoaster ride [Search result] – FT [35]
- Steve Eisman says European banks are the next big short – The Guardian [36]
- Then again, computers are the new hedge fund stars – Dealbook [37]
A word from a broker
- What next for the UK’s housebuilders? – Hargreaves Lansdown [38]
- Trump’s policies and growth opportunities – TD Direct Investing [39]
Other stuff worth reading
- Is Trump now bursting the bond bubble? – ThisIsMoney [40]
- Rising bond yields may mean it’s time to fix your mortgage – Guardian [41]
- Student loans: The lie the government sold millions [Search result] – FT [42]
- Map of UK’s most economically vibrant regions [Interactive] – ThisIsMoney [43]
- It’s Hammond’s first Autumn Statement this week – II [44] & FT [45] [Search result]
- Why the chancellor must not cut stamp duty – Guardian [46]
- In uncertain times, focus on what you can control – New York Times [47]
- India renders its high value banknotes worthless – The Economist [48]
- No politician can promise to bring jobs back – Guardian [49] [The Guardian!]
- Extract from Michael Lewis’ new book [On Kahneman et al] – Vanity Fair [50]
- Ray Dalio warns globalisation is in retreat [Search result] – FT [51]
- Science agrees with Warren Buffett: We should all read more – CNBC [52]
Book of the week: A friend of mine recently emigrated to America. Now he’s trying to understand what he’s got himself into. Research took him to a list by the New York Times [53] of books that may help one to understand Trump’s victory. The Unwinding [54] traces the alleged decline through pen portraits of the famous architects – or opponents – of the fall, while Hillbilly Elegy [55] focuses on a rural culture in crisis. Listen, Liberal [56] argues that left-wing thinking has disappeared up its own firmament, echoing my own suspicions. Given my views on Brexit, The Populist Explosion [57] strikes a chord, too. But then perhaps the lesson of the past six months is we should read the books that don’t appeal to us, and try to better understand?
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- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [62]]