About 5 years ago I sat in a meeting where one of the points under discussion was how viable it was to change client reporting from a monthly basis to a quarterly or half yearly basis. At a period where competitors were moving to weekly or real time reporting on the face of it this seemed like a step back rather than a step forward, however the reasoning behind the suggestion was sound – these were pension investors and they were taking a long-term view, so reporting should fit that view.
Five years on and I’m sitting in quite a different place, I’m also hearing the call of the long-term a lot more. In 2005 the suggestion to report less often rather than more regularly was considered radical and uncompetitive, today it seems to be an idea that is gaining traction. To sum up countless magazine articles, TV programmes, movies, books, tweets, blog posts and conversations over the last couple of years – our ability to filter information to something meaningful is limited, we’ve never lived in a world where we had so much information at our finger tips. We’ve moved from being thirsty for more info, to being a little tipsy on it and now we’re all drowning in information. We’ve started to realise that in some ways less really is more.
Of course when I say ‘less is more’ what I really mean is quality over quantity. If we’ve gone from lying in the rain (when it rains) with our mouths open, to lying beneath a tap that’s never turned off, what we’re looking for now is a cup. There is plenty of information available if we want it. What we need is for that information to be packaged up in a meaningful and useful way. Any investor who had a stock market chart on their desk top over the last two years should know what I mean, I’d be surprised if they don’t have grey hairs by now. On a day by day basis the markets have zigged up and down relentlessly. If you invested in them, and were viewing it all blow by blow it’s been dramatic, stomach churning, edge of your seat stuff. For those who tuned in perhaps once or twice a year, rather less so. Over a longer period those peaks and troughs are less steep, the rides been smoother, less dramatic, more comfortable. If you’re a long-term investor and not a day trader is the day-to-day ride really offering you a ‘true picture’ of events, or like a magic eye, do you need to step back to be able to see what’s really going on?
If quality over quantity is a trend that is going to become more pronounced what does that mean for the industry and for communications?
Behavioural finance suggests that investors who take a long term view, who buy and hold rather than move around are the real winners. A view that Andrew Haldane, the Bank of England's executive director for financial stability strongly expressed this summer (http://tinyurl.com/2w9yt26) and one that Warren Buffet has long, and famously, preached. In investor terms quality over quantity appears to translate as a focus on a slow but steady creep of growth, where volatility is low and surprises are kept to a minimum. This may help to explain the spotlight on traditional wealth managers that have attracted a lot more attention since Lehman's collapsed, a renaissance of interest could in part be attributed to investors return to “traditional values” and traditionally valued firms.
In the commentator and media space “risk” and “value” are topics you would need to be deaf to miss, with clear, loud questions regarding the value delivered by managers relative to the fees charged. Meanwhile investor money has flowed in to the traditional ‘risk diversifying’ sectors of corporate bonds and cautious managed – highlighting that risk has taken prominence over returns in the unmistakable shape £££.
If there is a shift in attitude this offers the industry opportunities. If investors want quality over quantity the industry can respond to that need. This response can cover everything from clear, informative if less frequent reporting on the performance of investors funds, to the development and sale of products designed to respond to that need for low risk cash plus growth products. Delivering not only what investors are highlighting they want, but also what they need.
Unfortunately what is needed can get lost in translation. Whilst the absolute return sector can offer investors access to funds designed to deliver growth at lower risk (unfortunately the sector offers access to a grand smorgasbord of funds, see Dan Kemp from Saltus’ thoughts on the sector here http://tinyurl.com/38csm53) what is happening is that investors are piling in to bonds, which both Soros and Buffet amidst others have warned against recently, and cautious managed funds (cautious by name and not necessarily nature http://tinyurl.com/2u7gad3). Many are concerned that best intentions are translating to the wrong, rather than right choices because there’s confusion as to what is the right thing to do. There’s more than one voice in the industry questioning whether the right products are being sold at the wrong time, yet again, and wondering why.
I read a blog recently which suggested investors have control of just three variables:
- What they buy
- What they pay
- Their emotions
Unfortunately the list of variables over which investors have no control was significantly larger and included:
- The direction of interest rates
- The direction of currencies
- The direction of markets
- The direction of political situations
- The direction of socio-economic change
The blogger in question suggested that investors who appreciated they alone could control their emotions and that seeking out advice to ensure what was bought and how much was paid was correct were more likely, if taking a long-term view, to reach their goals. To my mind this list plays in to the story that wealth managers have long been telling clients and that investors like Buffet have demonstrated (albeit on a quite staggering scale). My concern is that if the broader investment industry fails to see its role in this story then it will move from being a primary to supporting character and that would be both a tremendous shame and a lost opportunity.
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