Opinion: What are the challenges facing the investment industry?

John Dance, CEO at Vertem, shares his views on the challenges currently facing the investment industry

There are, and always will be, challenges in the investment industry. Recent issues have included; underlying market and economic dynamics, competition and more frequently of late, regulation. At present, we are balancing the investment challenges of inflated asset prices and changing global interest rate environments alongside the EU’s MiFID II (one of the widest ranging pieces of regulatory change to affect the industry). Thankfully, in relative terms versus our peer group we are small and nimble, allowing us to efficiently evolve our processes to suit both changes in market dynamics and regulation.

Aside from the implications of MiFID II, there are other factors and influences driving a structural shift in the industry. In recent years, additional regulatory changes affecting the wider financial services sector, have made it harder for financial advisors to service the less wealthy, creating a phenomenon known as “the advice gap”. This, alongside technological advances and online developments, have in turn created a variety of “self-select” and/or simplified investment solutions at lower costs.

Whilst the cost of investment management and investment products has always been in focus one way or another, the growth of lower cost solutions and a regulatory emphasis on the transparency of costs has seen this focus increase in recent years. In many respects, we are always conscious of the underlying costs of the products we invest client money into, however, our key consideration is generally what are or have been the net returns from said products.

There are currently many excellent and low-cost solutions available to savers and investors in the UK, particularly if their needs and desires are straightforward.  These solutions can be especially effective at fulfilling the requirements of clients left in an advice void for the aforementioned reasons. However, in my opinion, there are also many, if not more, poor quality solutions on the market, to reference the age-old adage “if you pay peanuts, you get monkeys”. Essentially, solutions that look cheap on paper, may fail to deliver adequate returns and can offer a low standard of service.

The other side of the coin of course is higher cost solutions, which deliver either enhanced or personalised services, or are more analytically resourced, potentially more sophisticated and offer the potential for greater returns after costs. Higher costs can only be justified if they offer something the lower cost solutions do not. It could be argued, that at this moment in time, too many providers are effectively offering simplified, “off the shelf” type services dressed as “haute couture”.

As the needs, objectives and interests for different investors vary widely, there is a place in the market for both low cost simplified solutions and higher cost enhanced services.  However, the low-cost options need to avoid being cheap for a reason and the higher cost products need to genuinely offer something superior.

At Vertem, we offer a personalised service backed by sophisticated processes and a talented, well-resourced research team, that has a proven record of outperformance. We also provide (via independent financial advisers) a lower cost, simplified and efficient solution to those investors for whom it suits. Therefore, we are positioned to benefit from continued industry changes and provide all investors with a service to suit their needs, whatever they might be.

0191 341 0289