Consumer Duty could increase passive’s appeal
Scott Dakers, business development director, Square Mile Investment Consulting and Research
The perennial debate of ‘active versus passive’ can already be highly polarising but the Consumer Duty regulations have introduced a further discussion regarding outsourced portfolio management – whether to be a ‘manufacturer’, ‘co-manufacturer’ or ‘distributor’. For many, the additional burden of ‘manufacturer’ or ‘co-manufacturer’ status might seem a step too far.
With enhanced due diligence required on portfolio management when selecting a third-party investment partner, passive portfolios, with a largely formulaic construction and the benefit of lower charges, may provide a ready-made solution. Ultimately, the aim of advisers is to help consumers achieve their long-term financial objectives.
See also: Five ways Consumer Duty will impact advisers and investment managers
It could be argued passive investment was made for those retaining ‘distributor’ status and that Consumer Duty may trigger a rise in popularity for passives as firms pursue this option.
Agility will remain key to market leadership
Clare Pleydell-Bouverie, fund manager, Liontrust
Innovators may have led the pack in the stock market during 2023 but this is grounded in solid fundamentals and we expect the trend to continue. Agility lies at the heart of an innovative business model and companies that are proving most adept in adapting to a more challenging environment are being rewarded.
Last year’s deteriorating macroeconomic backdrop provided a wake-up call to management teams across industries to refocus on profitability, yet companies have responded in varying degrees. Innovators have not just slashed costs, they are finding more productive methods of achieving similar growth.
The automation of workflows, artificial intelligence and the consolidation of real estate and workforces are but a few examples of how businesses are reducing fixed and variable costs, without eating into revenue growth or sacrificing the customer value proposition.
Impact investors target ‘radical transparency’
George Latham, managing partner, WHEB Asset Management
Candid detail about real-world outcomes of social and environmental investments will soon become a prerequisite as regulators seek to combat ‘greenwashing’ issues. As such, we expect to see impact investors exercising radical transparency – whether voluntarily or via regulatory pressure – as demand for sustainable solution-based funds increases, including asset management firms that currently only publish their top 10 holdings.
Over the coming months, the FCA is set to announce new rules that require sustainability-badged funds to demonstrate the impacts of their investments, as current labelling and reporting requirements are open to manipulation. A no-holds-barred assessment of companies’ impact on sustainability and the environment will be crucial if investors are to trust that their capital is being allocated to better the environment and tackle climate change.
