From my vantage point in the Blue Mountains, west of Sydney, the result of the 2016 federal election has been unfolding in a slightly abstract way. Removed from the need to be up to the minute on what’s happening, it starts to feel like a kind of logic underpins the result and the associated uncertainty. And it feels oddly familiar.
Even though at the time of writing it remains impossible to draw any final conclusions about the outcome, some of the explanations for what’s happened start to make more sense than others. Forget text messages and which politicians would or would not engage with which media outlets; the result has revealed a fundamental disconnect between institutionalised politics and the electorate it notionally serves.
It’s a lesson that has been learned the hard way by the two major political parties in recent elections, but it’s something that the smaller parties and the independent candidates seem to grasp intuitively. Strip away the opportunists who come and go from election to election, and there seems to be an understanding that the way to win the support of the electorate is to reflect back to them the things they really care about, and to demonstrate that they exist solely to represent the electorate’s concerns.
It looks like that’s also what underpinned the vote in favour of the United Kingdom to leave the European Union; and it’s more obviously a factor behind the (otherwise inexplicable) rise of Donald Trump as a political force in the US.
Not only politics
But it’s an issue that not only politicians need to be aware of. What’s happening in politics has been described as a flexing of the electorate’s muscles; the electorate standing up and saying things have to be done differently. In that sense it’s a form of consumerism, and business must respond to consumerism simply to survive. Some are ahead of that particular curve.
Before Trump won the Republican Party nomination, before the Brexit vote and well before Australia awoke to find it was starting down the barrel of another hung parliament, the fund manager AB (formerly Alliance Bernstein) produced a draft position paper on the relationship between fund managers and financial advisers in Australia.
In it, AB argues that the old way of doing things – manufacturing a product and then selling it to advisers and their clients – has changed. And it had to change for a simple reason: it doesn’t work any more. As the way financial planners change, and with it their relationships with clients, so the way fund managers have to work must change. The products, or investment solutions manufactured by fund managers, can’t be created in a vacuum, according to only the fund manager’s capability. They must reflect the needs and concerns of advisers and their clients.
Enjoyable engagement
“Part of the genesis of this position … is really the fact that as we’ve started to engage more fully with the retail market, part of the observations that have been coming back to myself from some of the CEOs of dealer groups – and in particular the independent dealer groups where we’ve had some immediate traction – has been to highlight the fact that what they enjoy about their engagement right now with fund managers is that they’re seeing more of a partnership happening there,” says Jen Driscoll, the chief executive officer of AB.
“One of the messages that’s come through from the team that’s directly engaging with the market, that’s resonating, is that a couple of the products that are the ones that are the highest priority, have been generated from client demand and client input, as opposed to what is, you could cynically say, the ‘product development machine’ of the fund management industry.
“When we think about where our business is going, and being in a highly competitive market, as most markets are, and there’s very little organic growth happening, the need to demonstrate that you’re providing value to clients, and in a construct that they’re able to consume, is just a non-negotiable.”
‘Confidence and bravery’ to share IP
Driscoll says fund managers need to seek feedback in a structured, if informal, way.
“Part of what some of the CEOs and I have discussed as we’ve entered into those discussions is that this has to be mutually working for both parties, so you [the fund manager] have transparency into how we’re running our business, and equally they [the dealer group] can get insight into how we run ours. That whole governance and cultural fit is a big piece of what I find myself talking to.
“You need to understand who you are engaging with, how they are running their business, and then ultimately, are you thinking about what your outcomes are in the same way?”
It takes a certain amount of confidence and bravery on the part of a product or service provider to freely share its IP (intellectual property) with its customers. But that’s the essence of a solid relationship, provided the receipt of the IP is treated with respect. Licensees and advisers, it should be assumed, may well be in similar discussions with other fund managers.
“If I think back to probably five-plus years ago when we were thinking about this, it is an issue that was discussed in the firm,” Driscoll says.
“But the more that we discussed it, the more we understood – and a big part of it is just understanding – what are the processes and the policies and the compliance that the parties you’re dealing with have in place to deal with what you’re providing to them by way of IP?
“Once we understood that, we got really comfortable and said ultimately this IP is for the client, so if we’re not willing to share it with someone who’s going to give it to the clients, I’m not quite sure why we’re generating the IP in the first place.”
Working together, growing together
The AB paper – currently being reviewed before a possible public release – says an important aspect of its commitment (and by implication, an important aspect of any fund manager’s commitment) “lies in the research we carry out into investment opportunities worldwide, and in our enthusiasm for sharing our research insights with our clients and financial advisers.”
“These are challenging times for the investment management and financial advice industries,” it says.
“For fund managers and advisers who are prepared to rise to the challenge by working together to meet client needs, however, we believe the future holds a great deal of promise.”
Driscoll suggests there’s another, more prosaic reason why financial planners and fund managers need to work together differently, and that is that the global financial crisis (GFC) shone a spotlight on the concept of financial planners as fund managers.
Some financial planners did a good job for clients through the GFC and some continue to do a good job, but either way, the experience illustrated just what a commitment of time and effort it requires to do the job properly. Outsourcing investment to specialists can make sound business sense from both a risk management and profit perspective.
Developing the profession
Driscoll says revisiting the relationship between fund managers and financial planners is an inevitable stage in financial planning’s development to a profession – because by definition, a profession cannot be tied (structurally or financially) to the manufacturing industry.
“I think it fundamentally comes back to trust,” Driscoll says.
“When you are seen as a qualified profession, there’s an element of yes, oversight and governance that comes with that, but ultimately it lends itself to a more trusted position.
“The industry has been struggling with trust for ever – for a long time. It’s good for the business and it’s good for people if they feel a sense of trust. That means they may actually seek out advice.
“That’s a really important evolution of the industry, and I think everyone is on that journey.
“You’re not just there as a product provider, you’re there to support the industry as a whole.”
