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In praise of investment advisers – the apex predators

For some time I have resisted suggestions to blog on issues related to investment advisers.  As someone from the age of slide rules, the concept of blogging seems as alien to me as a holiday in Malia.  However, I notice an increasing number of people from my generation who now blog on a regular basis.  Consequently, I believe that I should now cast off my reservations and embrace the world of blogging, whilst still retaining sufficient reservations to avoid holidaying in Malia!

Investment advisers are the apex predators of the financial world.  As the effective gatekeepers of pension scheme assets they have been free to comment on the shortcomings of fund managers and investment banks without fear of criticism in return.  Any species that lives without fear of predators tends to be lazy or, more kindly, complacent.  Can investment advisers be accused of the same outcome?  It is my belief that they are certainly not lazy.  However, in their client relationships and business practices they could sometimes be accused of complacency.  Greater scrutiny and comment on their performance and limitations may help to improve this for the benefit of all.

Having spent the last ten years analysing and assessing investment advisers, including both investment consultants and fiduciary managers, I can testify to their sensitivity to comment or criticism.  Directly challenging their practices and declared expertise has, in the past, led to the receipt of legal letters and the threat of legal action.  In the current environment I believe they are now more open to challenge and welcome feedback on their work.  At least I hope so, or in starting this blog my lawyers may once again be busy.

So what is to be the purpose of this blog?

Firstly, to cover any issues that relate to the management and organisation of investment advisers and the advice they give. Secondly, to highlight areas of best practice in the investment governance of pension funds.  And, finally, to bring to a wider audience issues which I am asked to comment on.

If you have read this far in the hope that I am about to launch into an attack on investment advisers then I am afraid you will be disappointed.  I intend to start with praise for their work, albeit briefly.  I believe, most investment advisers have areas of excellence at their firms and there are many consultants with real knowledge and expertise.  Trustee boards would struggle to manage their funds and continue to sleep at night without their advice.  Granted, investment consultants generally failed to see the end of the equity bull market and advise trustees to protect surpluses at the start of the millennium, while other commentators highlighted the risks.  Again, in 2008, many continued to promote the cult of the equity and failed to recommend the protection of improved funding positions.  However, investment consultants have not been complacent over these setbacks which, together with other factors such as accounting changes, have led to the development of new thinking and approaches, amongst them liability driven investment and fiduciary management.   If I were not in the mode of praising consultants, the cynic in me might suggest that these new approaches also offer new revenue opportunities for consultants, a win-win situation, at least for the consultants. But that could be the subject for another blog.


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5th October 2012