“You can sit in front of a prospective client and talk about how fantastic your research team is or how great your investment process is, but the client can’t really know the truth of that. What she or he does know is whether or not he is being treated fairly; whether the operational nature of what you do sits in their favour,” he told Portfolio Adviser.
As a case in point, Gardner said, on the fees side, the firm has been rebating trail commission to clients since 2005.
“If you are a genuine agent for your client, you can’t you justify any practice where there is a clear conflict of interest. And there is a clear conflict there, because the choice was not only about investment but between an investment that pays a trail into our back pocket and one that didn’t. So, we just removed any doubt by paying that commission back to clients.”
Speculating that this could be part of the reason why so many firms ignored investment trusts, Gardner added, the downside, now, however, is that those payments are taxed as income, which wasn’t the case before.
The other area that Gardner believes is going to become an increasing point of focus for regulators is added transaction commissions.
“I think it is wrong to charge clients transaction commissions when there is any commercial profit in doing so because it has the potential to create a scenario where a firm might encourage investment managers to churn portfolios to generate additional revenues,” he said.
As a caveat, however, he said: “If it can be proved that it is a cost-only charge that is being passed on, that is a reasonable business practice, but we take the view that it is better not to charge it at all.”
“That way, when we come to make a decision about client portfolios, we never have to say well is it worth doing because it is going to cost x? There are always some costs that we can’t control, so we do have to take things like stamp duty and the general cost of adding or removing units in a fund into consideration, but that is relatively minor, unlike commission.”
Investments
From an investment point of view, Gardner says the firm has been looking intently at emerging markets of late, because most in the market are worried that a rise in US interest rates will be bad for emerging markets.
Apart from a position in the HSBC GIF India Equity Fund, which it purchased shortly after the election, for, Gardner says, “all the standard reasons” Gardner says he is looking at a number of other opportunities within the sector.
“Overall I think a hike in US rates will be bad for emerging markets, but you have to divide out the various regions, because not everything will be affected equally. Iran is a good example, we have been looking around for Iranian funds and, we haven’t found many yet. But, I think it is a very interesting country, it is probably the most westernised of the Middle Eastern countries, apart from Dubai, and you could see a very quick turnaround in psychology in Iran if the nuclear deal and the lifting of sanctions come through.”
Nigeria, is another country on which Gardner is keeping a close eye, as the recent election there is evidence that the population wants to stamp out corruption, and the new government looks more favourable for the economy going forward. But, he said, he is yet to buy in.
On the other side, he said, the firm has also been considering shorting China. “There is a lot going on there. We are not sure exactly what is going to happen, but there does seem to be the possibility for bubbles to develop very quickly,” he said.
