During my two decades working in the private client investment management industry the one aspect that continues to frustrate and surprise me is the reluctance of clients to change their investment manager.
There have been frequent papers written on this subject with reference to retail banking. I imagine most of you reading this article have probably never moved from your original high street bank.
I think my relationship was sealed by some form of welcome pack and a £5 gift rather than any understanding of their service or rates. It is remarkable how tolerant, or maybe apathetic, clients are of poor service, substandard investment returns, error-strewn administration or a non-existent digital capability.
However, it is just possible that the impact of the Covid-19 pandemic may be the catalyst that prompts clients to pick up and move on. For the first time in many years performance, service and operational ability have all been-stress tested.
Consequently, those firms with robust investment processes and well-invested operations have been able to excel, opening a material gap with many of their peers.
Taking each one of those three component parts in turn;
1) Performance - Over the last ten years, as the liquidity fueled bull market took all asset classes higher, performance returns, as measured by ARC were highly correlated (0.93 across the ARC Steady Growth PCI peer group to December 2019). However, by the time Q1 2020 had drawn to a close, returns had widened out materially as managers, running similar risk strategies, achieved highly differentiated performance (ARC Steady Growth PCI range of returns in Q4 2019 was just 1.2% versus 2.7% in Q1 2020, representing a 125% increase).
2) Service levels - When markets are performing well the firms where client service is not embedded into their culture allow the frequency of client contact to slip. When volatility spikes and client contact becomes more frequent, investment managers risk being unable to manage the increased client demand.
3) A well invested operational capability - As Warren Buffet said ‘you don't know who is swimming naked until the tide goes out'. Well, the tide is well and truly out and those firms that have underinvested in their operations and digital capabilities will be stranded, with no clothes and feeling very exposed. As offices shutdown and staff work remotely firms need their support functions to respond. Initially, that fell largely at the feet of the IT team. However, it also rolled into all aspects of business including the dealing functions, payment process, compliance, transitions, corporate actions and many more.
Furthermore, as the first quarter ended and investment and tax reports were being produced and distributed it will be interesting to see which firms were able to rise to the challenge of managing this remotely. Who was able to utilise their portals or seamlessly and quickly arrange for all reports to be sent automatically.