The best book about the fund management industry was written in 1940 by Fred Schwed Jr. It is called: Where are the Customers’ Yachts?
His focus was Wall Street and his point was that the small investor is at the bottom of the food chain, plankton among a sea of predators.
The title tells you most of what you need to know. The brokers and fund managers may indeed end up owning yachts. The customers?
Well, Schwed’s description of professional investors goes like this: “At the close of the day’s business they take all the money and throw it up into the air. Everything that sticks to the ceiling belongs to the clients.”
He is writing for comic effect, but he means it. The fund management industry in the City is not this mean. It intends well and often achieves good outcomes.
But those outcomes are too much better for itself than for the customer doing the right thing, bravely putting away £200 a month into stock marketfunds they trust will work out in the longer run.
Some of those in our table here today dispute our methodology, and it is true you can cut these things in different ways and over different time periods. Some funds have higher fees for good reason, some funds take years to come good, and some investors understand that.
The wider point stands. There are too many City investment funds that exist to fund the lifestyle of the fund managers, not the clients.
To an extent, the Financial Conduct Authority still allows these funds to mark their own homework. Guess what? They nearly all pass.
More and more customers are wise to the costs of funds that don’t really succeed, even over 10 or 20 years. The industry needs to change and thanks to lower cost internet funds, is heading for a shake-up that is surely overdue.
