Not every fund manager is Warren Buffet - so it's time for the watchdog to get busy


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The Independent Online

When the City watchdog set itself up to give the banking industry another kicking through a competition investigation, I suggested that it might be time to divert some resources towards the fund-management industry.

It seems that someone in Whitehall has been thinking on similar lines.

Fresh from announcing its latest banking inquiry, the Financial Conduct Authority has now joined forces with the Department for Work & Pensions to – now don’t get too excited – investigate transaction charges in occupational pension schemes.

In English, it means the DWP is worried that you’re getting ripped off by the fund management industry and it wants the FCA to get busy. Having introduced auto-enrolment into workplace pension schemes, it is understandably keen to ensure it isn’t throwing millions of people – and their money – to a pack of City wolves.

Announcing the review, pensions minister Steve Webb fretted about “the dark corners of the investment and pensions industry” possibly holding “some nasty surprises”. He has good reason to be concerned.

Prior to the banking industry’s spell in the dock, it sometimes seemed as if barely a month would go by without the emergence of some tawdry scandal from some part of the pension and fund-management industries.

Some of the more obvious abuses were ultimately dealt with, but the industry is nothing if not inventive when it comes to finding new ways to skim money off the top of the savings entrusted to it.

A 0.75 per cent cap on the charges that can be levied on the funds of people saving through workplace pensions, which comes into effect next month, might sound like one way of redressing the balance.

But it’s arguably too high, given the windfall the industry will get from all those new pension savers, and crucially it doesn’t include transaction costs, dealing charges and the like. With the introduction of the cap, they could provide a marvellous opportunity to add a little extra on top.

It is to be hoped that the review will go some way towards nipping that one in the bud. But it is also to be hoped that this is just the industry’s starter for ten.

For too long it has been allowed to grow fat on fees with little sign that there is much in the way of competitive pressure to bring them down.

Of course, if your fund manager is the son of Warren Buffett, the sort of star that can beat the market over the long term and generate handsome returns for you as well as himself, then you’re not going to bemoan a few extra basis points on the fee.

The problem is these creatures are vanishingly rare. Far too much pension money is being left to drown in a sea of mediocrity.

Worse still, the industry takes a remarkably lackadaisical approach when it comes to overseeing the investments it makes with that money.

It is not only because of the negligence of the people who ran banks that the financial system so nearly went pop during the financial crisis. Their owners should also bear some of the responsibility. They dropped the ball. And they’re still doing so.

Before he became chairman of Barclays, Sir David Walker called upon fund managers to devote more time and effort to engagement in a review of banking governance. He’s since complained that his pleas have fallen upon deaf ears.

This lack of engagement was not the only cause of the banking crisis. But the fact that fund managers were asleep at the wheel during the run up to it certainly didn’t help. And they still haven’t woken up.

So regulators need to do more than look at transaction costs and transparency.  They need to give the entire industry  a good shake. 

Olympic legacy in the hands of a corporate train wreck

 The 2012 Olympics was a fantastic event, the likes of which we may never see again. Its legacy, however, has been rather mixed.

Depressingly, a recent report from Sport England found a decline in the number of adults doing even half an hour’s moderate sporting activity during a week.

Moreover, while investors are cashing in on a stream of well-heeled professionals attracted by Stratford’s up-and-coming-area status, some of the locals are asking when they’re going to get a piece of the pie.

The latest of those investors Balfour Beatty, which has agreed a £400m deal to build two new residential areas with the sort of names that only a corporate PR executive could love.

Would you want to admit to living in East Wick or, erm, Streetwater? Well, it seems thousands are going to. Ah, but there are 450 affordable homes among them, I hear you say. And don’t you keep banging on about how London desperately needs them?

Well, yes. But it will be interesting to see just how affordable they turn out to be. And I’d be just a mite concerned at the prospect of having Balfour build them.

This, after all, is company that went from being a rather dull – but commendably reliable – performer that had a habit of beating analysts’ forecasts by a small but respectable margin to a corporate train wreck. One that has managed to turn in no less than six profit warnings in two years and that has had to install a revolving door at the entrance to the boardroom to cope with all the changes.

This is the company whose £400m first venture into house building will be a rather important part of the Olympic legacy.

Based on that, if the biggest failure of the Olympic legacy does ultimately prove to be the fact that Britons appear to prefer snaffling cream cakes in front of the TV to engaging in physical activity, it will count as some sort of result.