The discussion on overhauling the financial system is failing to hear key voices

THERE is an old joke about a financier taking a guest out sailing for the day and boasting about the fabulous yachts bobbing in the harbour owned by fellow bankers and corporate advisers.

"But where are the investors' yachts?" asks the visitor, whose simple question encapsulates the all-too-often destructive relationship between investors and those who serve them.

The bankers' yachts were paid for by the lucrative fees that propelled the bonus culture. An insatiable appetite for ever more innovative ways to generate fees, and therefore big bonuses, ultimately steered our economies onto the rocks.

None of this should have happened, but regulation failed. So now governments are drawing up new regulatory frameworks designed to prevent a repeat of the credit crunch, which caused such damage to businesses, jobs and consumers.

And who should we most trust to reshape regulation? Politicians? Investment bankers? Regulators? Yes, those responsible for the meltdown are currently locked behind closed doors, playing God over the future.

Other groups are becoming frustrated at being refused a seat at the top table. Fund managers, responsible for 3.4 trillion of the nation's pensions and other savings, are among those concerned that their views are being sidelined.

Scotland should be playing a pivotal role, given it is responsible for around 12 per cent of this money, managing 360 billion of pension fund and insurance investments and employing 4,000 staff, primarily in Edinburgh.

But Douglas Ferrans, the new chairman of the Investment Managers Association, is worried that this voice is being lost. He said: "We should be the power in the land. We speak on behalf of insurance companies, pension funds and small investors. We are the ones companies rely on for money to invest in their businesses, on which the recovery depends. When they need and want cash, we decide who gets it, not investment bankers who merely put deals together."

Certainly, the world of finance is complex. In simple terms, fund managers are like managing agents for property owners, while investment bankers are sparkies, called in to keep the lights burning. Job done, they depart, leaving bad connections that later catch fire.

Ferrans said: "It is our job to safeguard investors' interests, and yet we are often left out of key discussions. We have to shout very loudly to make our voice heard. The debate should be far more joined up than it is. We want that to change, and for us to be listened to and those involved to appreciate the significance of our contribution."

Colin McLean, managing director of Edinburgh's SVM, agrees there is much to be alarmed at over the way regulatory talks are proceeding.

He said: "He [Ferrans] is right to be concerned. Some of what is happening is retrograde. Take the requirement for bigger deposits to get a mortgage. It is an understandable reaction after Northern Rock, which was lending 125 per cent of the value of a property.

"But now lenders are required to ask for much bigger deposits, in some cases 50 per cent. This is too much, as it gives banks and building societies complete security. It absolves them of any need to get to know their customer and assess the risk. This turns mortgages back into a commodity, which is not a good thing and partly caused the current crisis. They should be advancing much bigger mortgages, safely, by assessing the individual risk."

Others say fund managers themselves are to blame for no-one being interested in what they have to say. Caricatured as a group that stayed silent when it should have spoken out, they have been blamed for the huge destruction of capital which occurred when the banks crashed.

McLean is scathing, though, about any suggestion of fund manager as Cassandra, pointing to the opprobrium poured on hedge fund managers selling out of HBOS. He laughs: "The Financial Services Authority put out a statement condemning the ‘pessimistic chatter' aimed at destabilising HBOS. As if it was possible, at that stage, to destabilise HBOS further."

More seriously, he adds, fund managers did attempt to exert pressure on companies. But these initiatives took place behind closed doors and proved ultimately fruitless, because managements reneged on unwritten agreements.

He said: "Companies did speak to managements about strategies which they were unhappy about. But all this was done in private. Standard Life and Legal & General got certain undertakings out of RBS, for example, but the bank reneged on its promises. And this was the problem.

"All these discussions took place behind closed doors, and companies didn't keep their word."

Ferrans acknowledges fund managers cannot escape criticism that they behaved like "absentee landlords" and were "asleep at the wheel", but says change is coming.

A new body called the Institutional Investor Council (IIC), chaired by Standard Life's Keith Skeoch, is being established to bring institutional fund managers together to collectively put the boot in when management hubris endangers investors' savings. A new stewardship code has been launched.

Michael McKersie, assistant director of capital markets at the Association of British Insurers, said: "Investors have a right to expect companies are run in the interests of shareholders. That is also in the best interest of the UK economy.

"If investors are unhappy with the way a company is run, then the best thing to do may be to sell. But sometimes the right thing to do is engage with the company. The new council will provide a mechanism for collective engagement."

Ferrans admits: "As an industry we should have done more, and could have done more, and in the future we will."

This is humbling given a career in asset management, notably as chief executive of Scottish Amicable Investment Managers, managing director of Britannic Asset Management, and founder, chief executive and chair of Insight.

For starters, he is gunning for the investment bankers, and he's not alone. The Office of Fair Trading is about to launch an investigation into the 70bn market in capital raising, rights issues and equity underwriting, which typically results in 2bn annual fees for investment bankers and other middlemen.

Clive Maxwell, a senior director at the OFT, said: "Economic growth relies on companies being able to raise capital efficiently. We want to identify areas for improvement. Our work is also to advise government in its wider thinking about wholesale financial markets."

Ferrans is convinced that radical reform is vital. At the very least there should be an open auction before contracts are awarded, complete transparency on price, and penalties for managements who embark on expensive deals which fail.

To this end the IIC has also launched its own inquiry into fees, which he is chairing. But ultimately, he would like to see the bankers scuppered for good. "Why do we need them? You have managements who want capital and fund managers who have it. It should be possible to bring their interests together without go-betweens charging 2 per cent.

"I'd like to get to a point where we squeeze investment bankers out of the picture altogether. Why should small savers pay for rich bankers' yachts?"