Last week marked the ninth anniversary of the Northern Rock meltdown and eight years since Lehman Brothers collapsed.
Those milestones were marked in apt fashion in the regulatory corridors of power, where the yearning for the “good old days” of the pre-crisis years only grows stronger.
The banks are still too big to fail and still geared more towards serving themselves than their customers or the wider economy. It’s become clear over the past year, however, that the powers that be want to take the banks off the naughty step.
The focus has instead been on another bloated sector with a neat line in self-interest, obfuscation and fleecing customers. Fund managers have continued to thrive while the banks have suffered the scorn of regulators and the public. The financial crisis and its aftermath posed a stiff challenge, but they’ve simply found ways to make the environment work for them.
It’s a fine line between innovation and exploitation. Fund firms too frequently fall on the latter side, churning out marketing gimmicks disguised as innovative products and rewarding managers who fail to deliver on their promises.
UK and European regulators have been more interested in asset managers over the past couple of years, however. The launch of the Financial Conduct Authority’s asset management study last year put firms on notice that their high-fee, low-transparency business models were under threat. Fund managers have for too long got away with overcharging investors without making it clear what they’re paying for.
The shift towards transparency has unsettled much of the fund industry, which has been lobbying against it. They know the game’s up, but they’ll play for all the time they can get. The more enlightened elements, such as Woodford Investment Management and Edinburgh’s Baillie Gifford, understand the importance of clarity and transparency, but they remain in a small minority.
Unfortunately, it appears that the majority still have friends where they need them. The asset management study was supposed to appear this month, before the industry succeeded in using Brexit as an excuse to lobby for a delay.
Now it seems that a proposed cap on fund management charges is to be ruled out by the FCA. This on its own is not a great concern. Caps are rarely the answer and fund managers would have little problem getting around them.
What is worrying is the suggestion that fund managers could again get their way. Last month the Investment Association, which represents the fund management industry, published research that purported to demonstrate that there are no hidden fees, yet it completely ignored a key element of the transaction costs at the heart of the debate.
The omens aren’t good. European rules aimed at improving protection and charges transparency have been put back a year to January 2018. Between that and Brexit, the fund industry has renewed hope that a City-friendly government will be sympathetic to its pleas.
But they’ve had their own way for far too long, at the expense of millions of people saving what they can into their pensions and Isas. Another regulatory climbdown will simply give firms the licence to continue ripping people off.