Last week was a difficult one for the Investment Association, the trade body that represents the interests of more than 200 firms with assets under management of around £5.5trn, after it emerged that several large members were considering quitting. 
Things ended with chief executive Daniel Godfrey stepping down from his post and the organisation pledging to start a member consultation, as well as search for a new leader. The fallout of all this could have wide-reaching implications for the fund management industry and how we – the end consumer – view it.
The events dominated the financial press’ headlines for much of the week. After the initial Sky News report that M&G and Schroders were considering letting their memberships of the association expire, a second report claimed that at least three other major players – Aberdeen, Fidelity and Invesco Perpetual – were thinking of doing the same.
Although none of the mentioned groups or the Investment Association were commenting on the story, ‘sources’ said the reason behind the potential departures was a “blurring of the lines” over what the trade association was seeking to achieve, with some saying it was acting too similarly to the Financial Conduct Authority (FCA).
Initiatives carried out under Godfrey, who joined as the association’s chief executive in December 2012 when it was the Investment Management Association, include the launch of a 10-point Statement of Principles to improve the industry’s standards, a review of executive pay at asset management firms, a drive to boost fee transparency and the organisation’s merger with the Association of British Insurers’ investment affairs division.
But the suggestion is that some parts of the asset management industry have concerns over Godfrey’s priorities. The argument is that he was too focused on retail reforms and failed to adequately address issues such as the unbundling of fees on research and trading costs under Mifid II, which could have huge consequences for the industry, or look at international issues enough.
By midweek, Godfrey was out as chief executive by mutual consent. Investment Association risk, compliance and legal director Guy Sears will take over the role on an interim basis until a successor is found, while chair Helena Morrissey later announced that a member consultation on the association's priorities will take place.
So that’s what has been happening at the Investment Association but the important thing is what happens next.
As mentioned, all parties involved in the events of the past week are keeping relatively silent on the matter and declining to confirm the reasons behind the potential departures from the trade body – or even if these departures are on table. In my experience, this often suggests that the comments attributed to anonymous ‘sources’ are on the money.
The phrasing of the official releases from the Investment Association on the matter are telling, however. For example, Morrissey said when thanking Godfrey for his contribution: “During his time Daniel has driven a number of important initiatives, including the transformative merger with ABI Investment Affairs.”
The ABI merger was no doubt important as it essentially created a single investment body for asset managers to engage with listed companies on corporate governance issues.
But having spoken previously with Godfrey about his strategy, you get the feeling that he would have wanted the fee transparency campaign and the Statement of Principles include on his list of achievements as much as, if not more than, the ABI merger. These seemed to be ‘passion projects’ of his.
The announcement of the review also seems to suggest the Statement of Principles in its current form will be much less important to the association’s future strategy, although that will of course depend on the outcome of the member consultation.
Morrissey said: “The issues some members have voiced have been about the scope of the association's agenda and the style and approach of engagement with members in recent years.”
“Whilst our overall remit and focus remains on highlighting the important role that asset managers play in terms of addressing the pensions and savings needs of individuals, supporting the growth of companies and contributing to the UK economy; there is a need to consult on how the association prioritises against a packed agenda for the industry.”
“The board and the industry remain committed to the values captured in the Statement of Principles but we are listening to members with regard to how it is implemented. There is no intention to make any changes to the ongoing executive pay project.”
One would expect the Investment Association and the asset management industry to be “committed to the values” of the Statement of Principles as they are very similar to the FCA’s rules, especially the Treating Customers Fairly initiative – indeed, the first principle says signatories will “always put our clients’ interests first and ahead of our own”.
But the Statement of Principles (and the fact that in some ways they go further than the regulator’s rules) seemed to be a sticking point for the industry. Despite Godfrey championing the cause – or maybe because of this – it launched with only 25 signatories and many of the industry’s biggest names were missing from the list of those joining up.
This attracted strong comments from the likes of the True and Fair Campaign, which is a frequent critic of the investment industry and argues that it often “acts like a cartel”. 
“It beggars belief that a non-legally binding Statement of Principles, which simply contain practises which every other reputable non-investment firm carries out without hesitation, should be considered contentious,” Gina Miller (pictured), founder of the campaign, said last week.
“It is clear that many in the traditional UK fund management industry are not interested in promoting the best outcomes for its clients or putting customers first. These reported departures and associated explanations reveal a complete lack of any willingness to be opaque, let alone transparent.”
There may be a grain of truth in Miller’s comments, but I feel they paint a worse picture of the industry than it really looks. The fund management world is by no means perfect, but at heart it’s difficult to believe that every member of it is out to rip off the end client.
The issue really boils down to what purpose we expect a trade body to serve. It’s clear that some of the Investment Association’s members feel the organisation has failed to do what they pay it to do: look after the interests of the industry. When some members are paying more than £200,000 for the privilege, that’s no small concern.
We already have one financial regulator so why should the industry pay to create a second one, is how I imagine Godfrey’s critics view the situation. A trade body should act as an opposite and equal force to all this troublesome regulation, they might add.
There’s a logic to this but not one I necessarily agree with. Shortly after taking up his role, Godfrey wrote a blog post explaining what he wanted to achieve as chief executive and restoring trust in the industry through transparency and putting the client first was top of the list.
“Since the financial crisis began, there has been a profound breakdown of trust between society and financial services, which has dragged in investment management just as it has the banks. There is no point in complaining that it is unfair or that we are not to blame. That won't change a thing,” he wrote.
“If we want to gain trust from society, we can only succeed through what we do. And what we do has to be to take positive steps that demonstrate clearly that our driving force is to deliver great results for our clients. If this is the case, then we will have nothing to hide and so complete transparency holds no fears for us.”
“This doesn't mean pandering to every siren cry that the industry is ripping customers off (it so isn't) and being pushed into developing complex measures and disclosures that would serve to conflate apples with pears and actually mislead clients. Instead it means being willing to look at ourselves objectively, identify any improvement that could be made and then actively taking steps to raise the bar.”
While a trade body needs to look after the interests of its members, I believe there’s also room for it to say “come on, we can do better than this” and push through changes that will shape it for the better – before a regulator comes in and forces it to do it. Godfrey’s way of engaging with the industry may have been a problem, but what he was ultimately trying to do appears to be for the long-term good of asset managers.
It might be that the Investment Association has to do more, rather than less, under its new leadership. It’s clear that some members think the organisation has dropped the ball on issues that need attention, so it should have a greater international focus and fight more for its interests with the regulator.
This doesn’t mean the drive to improve things for the end investor and make the industry more transparent needs to be swept under the carpet. Maybe a more collegiate approach has to be taken, but ignoring these issues and the accusations of the industry being a “cartel” will only grow louder.
At the end of the day, Godfrey lost the faith of the Investment Association’s paying members – leaving little alternative but for his departure. But I think in the long run his successor will need to have more of Godfrey’s vision and aspirations for their industry than his critics at the moment might suspect.
