“What comes up, must come down.”
Based on Newton’s law of universal gravity, this pithy phrase is often applied to those stars across a range of fields who have soared before crashing to earth in ignominy.
It certainly applies to Neil Woodford, the star fund manager whose reputation was built on his record as a contrarian investor during 25 years at Invesco, before it soured after he set out on his own in May 2014.
The danger for the fund management sector is that many others risk being drawn into the probes that have recently been announced by the Financial Conduct Authority and the Treasury Select Committee. Other big names, including Hargreaves Lansdown and Lindsell Train, have already been drawn into the probe for different reasons, and it is unlikely that they will be the last.
Alva’s reputation tracking shows that good or bad behaviour by one or more firms – particularly a well-known one – impacts the reputation of all their rivals
We know from our relationship with Alva, the reputation tracking specialist, that the reputation of other fund managers will be dragged down by what has happened to the most prominent operator. Why? Because Alva’s reputation tracking shows that good or bad behaviour by one or more firms – particularly a well-known one – impacts the reputation of all their rivals (whether positively or negatively) in that sector.
So what does this mean for the fund management sector and the numerous firms that operate within it?
First, every firm – whatever their size or track record – should be asking themselves hard questions about their business practices, relationships and actions over the last decade. Are they prepared to answer questions on any element of them? Does their behaviour stand-up to scrutiny? If not, what can they do to reduce reputational risk?
Secondly, what story are fund managers telling to key audiences and what channels are they using to do this? Although many fund managers produce monthly or quarterly update reports, do they provide the real insight and reassurance that existing and prospective customers may be looking for? Although a running commentary is neither practical nor wise, the rules of the game have undoubtedly changed and asking people to “trust us, we know what we’re doing” will no longer wash.
Thirdly, at the right point the sector will need to get on the front-foot and tell a consistent and positive story in a way that it has not to dated. This work could be coordinated by one of the relevant trade bodies – such as the Investment Association – but sometimes these representatives groups need to move at the pace of their slowest member and so may not be able to coral everyone into the same place. If this isn’t possible then the forward-thinking firms need to club together and carry the ball on behalf of everyone.
Although the vast majority of consumers do not proactively engage with investments, the people who manage our money have a crucial role for everyone with a pension – which is millions of people. While seeing a star crashing to earth may make for a good story, we all have a stake in seeing the fund management sector succeed. We all need the fund managers – individually and collectively – to respond in the right way.
They need to prove, at least where are our money is concerned, that what goes up does not necessarily need to come down.