Greed is good or is it?

When Gordon Gekko preached that “Greed is good” in the film Wall Street in 1987 he epitomised the eighties’ era of booming stockmarkets, corporate raiders and the unethical and greedy behaviour of stockbrokers. Thankfully we have moved on from those times or have we?
 
The subsequent box office success of The Wolf of Wall Street in 2013 indicated that things hadn’t really moved on much at all in the following years.
 
The scariest aspect of these films was how the largest financial companies in the world including stockbrokers, banks, fund managers and their professional advisers continued to behave not only unethically, unprofessionally and dubiously but also illegally.
 
It appears to me that the regulators are reluctant to come down too heavily on the largest companies and instead target the smaller firms as they represent a softer target and will not risk the entire financial system crashing around them. Hence in the Wolf of Wall Street the fictitious stockbrokers Stratton Oakmont get driven out of businesses whereas the largest stockbrokers are allowed to remain in business despite using the same illegal practices.
 
It’s little wonder the public has a sceptical view of financial services!
 
I have visited a number of fund managers’ offices in the City and seen first hand just how wealthy many of these businesses are. Often there is huge amounts of empty space in reception which is adorned with expensive furniture, marble statues and expensive works of art on the walls. The word opulent comes to mind. These offices are truly ostentatious and permeate an atmosphere of great wealth and magnificence.
 
I have attended fund manager conferences where the entertainment and cuisine on offer is of the very highest standards. The sheer amount of expensive literature , pads, pens and corporate gifts they have to give away seems boundless.
 
These fund managers appear to be very wealthy. That’s because they indeed are very wealthy! Many of them have huge amounts of money under their management. It is estimated that there is £7 trillion worth of money invested in the UK. Many fund managers have tens of £billions under management and some have hundreds of £billions. Assuming an average annual fee of say 1% that means that a fund manager with just £1billion under management is earning £10million a year in fees. With £10b under management their annual fee income rises to £100m and with £100b it rises to £1b! That is a seriously large amount of annual fee income.
 
One of the findings of the Financial Conduct Authority’s study of the asset management industry in June 2017 was that there was little competition and that the profit margins of such companies at 36% had remained at the same level for many years.
 
It’s not as if most fund managers are even doing a good job! The average active fund manager underperforms the market by 2% a year. The FCA recently investigated 84 fund managers it suspected of running closet tracker funds and discovered that 64 of them were indeed doing so! This resulted in the offenders having to re-write their literature and refund £34m to investors. However, this is only the tip of the iceberg!
 
The obvious conclusion backed up by the regulators, the FCA, is that the fund management industry is a very wealthy complacent club which largely continues to be run by self-interest, which is underperforming and overcharging investors and continuing to be run at least unethically if not illegally. I can still hear Gordon Gekko saying “Greed is good!”
 
Well the good news is that not all fund managers are like that. A growing minority of fund managers is increasingly putting investors first especially those fund managers who manage passive funds. I have previously praised companies such as Baillie Gifford and Vanguard in my previous blogs. Whilst we are a relatively young fund management company having only launched our first fund on 16 April 2018 we are totally committed to putting our investors first.
 
We believe that 21st century companies should look after all of their stakeholders well. By stakeholders we mean their customers, their staff and their suppliers. Our mantra is win:win meaning that both the company and its stakeholders must benefit equally. This habit was championed by Dr Stephen Covey in his much acclaimed, best-selling book “The Seven Habits of Highly Effective People.” The problem today is that far too many companies operate on a win:lose basis. The active fund management industry is largely run that way. Most fund managers operate on a win:lose basis meaning they put their own shareholders , the company, first and their stakeholders last.
 
So why not invest your money with a fund manager that is committed to only ever work in the investor’s best interest, one that doesn’t have external shareholders to satisfy, one that will never occupy ostentatious City offices, one that won’t waste money and will only practice win:win behaviour. That company is Minerva Money Management. The fund is the CCM Intelligent Wealth Fund. You know it makes sense.