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Investment People – fiduciaries or salesmen?

Josh and I were in Austin & Boston last week meeting with other advisers at the top of their fields and discussing issues surrounding best practice and fiduciary duty.  The concept of an investment adviser acting as a fiduciary to client’s wealth is given a very high profile in the US but we wonder if in the UK, this is something of an exception rather than the norm? The changing regulatory structure on how advisers charge for their services has brought about sweeping changes in how advisers are positioning themselves when working with their clients and perhaps now is the time to look more deeply and perhaps laterally, at the way we define service.

Investment managers typically invest portfolios in accordance with a stated mandate whereas wealth managers spend time exploring a client’s needs in order to create a mandate by which they invest the money (on the client’s behalf).

Where Trustees act as fiduciaries and stewards over the distribution of their assets, If they don’t already, should not wealth managers also adopt a more active approach as fiduciary over the allocation of capital to achieve a client’s goals?

The issues as we see them, are that it is very easy to “cozy up” too closely with the market and attempt to confuse market returns with the individual ability.  We think it is time to separate out the role (and the return) of the market with that of a wealth manager.  A wealth manager should make smart, logical, robust financial decisions on behalf of a client and as such act as a fiduciary.  A wealth manager should not claim that the returns he is generating is purely a result of his inherent skill (alpha) and therefore hoodwink himself/herself into thinking that he/she is a magician.  As such the fee that the adviser should charge should be as much in line with a fee for fiduciary duties as that of  a fee for a hedge fund manager.

During our trip we met with a number of other firms who think in a similar way as us and we discussed how we can find a common voice by which we can illustrate the gaps that still exist in our industry.

While we were away in the US it was announced that Calpers, the largest US pension fund, has dumped its exposure to hedge funds.  More on this story on a forthcoming blog.


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