Is the fiduciary duty debate just for show?
It is hard to argue with the assertion that the fiduciary duty placed on investment intermediaries could be seen as a moral duty, a way of behaving, a form of conduct – to borrow a phrase recently employed by Daniel Godfrey, head of the UK’s Investment Management Association.
The seemingly enlightened view, one he said would lead to lower management fees, is a departure from the way his predecessors discussed the matter and should be welcomed for embracing the debate surrounding the role of intermediaries, triggered by John Kay’s review on long-term investing.
But coming only days before the UK government asked for a review of the term ‘fiduciary duty’ with all that it entails, and also shortly before the Financial Conduct Authority said it would take time to examine fund design and “hidden” charges, you have to wonder how much of it was a genuine attempt by the association to turn a leaf and start afresh under a new chief executive, or simply pre-empt the inevitable criticism that it was failing customers.
To its credit, the IMA has recently made a fair amount of noise on fees and, together with its pension and insurance counterparts, examined how fees can be explained in a more transparent and understandable fashion. Godfrey’s comments can be seen as a natural continuation of an attempt to soften the industry’s image, but as he himself admits, there is years of mistrust that needs to be addressed – not least years of rising fees in the UK, when comparable fees for retail customers in other countries declined.
It is imperative that the debate around fiduciary duty, long-term sustainable investment and fees continues. Cynicism may be the natural home of some, but support from the IMA on the matter, even if its motives are questionable, can only be welcomed as the UK moves towards creating a generation of auto-enrolled pension savers – especially ones that will not be inclined to join in the debate.
Liabilities spanning decades would tend to make pension funds natural long-term investors, yet for reasons that have driven both the UK government and European Commission to investigate the matter – with John Kay’s review and the Green Paper on long-term investing – European funds remain biased towards shorter horizon investments, at least more so than their Canadian and Australian counterparts.