For John Stainsby, the twin ‘T’s of transparency and timeframe sit at the heart of the triangular relationship between asset manager, intermediary and end-investor.
“Investment markets are tough, and achieving decent returns and good outcomes from them is a real challenge,” he says. “So transparency – in terms of being very clear about what you are doing, why you are doing it and the outcomes you want to achieve – is key.
“As is deciding on a suitable, longer-term timeframe in which to deliver those outcomes – and, by ‘longer term’, I don’t mean ‘wait until we’re right and then we can be all sanctimonious about it’! It is about encouraging people to invest for an appropriate period of time and being transparent about what they should expect at the end of that. That is in the interests of all three parties, albeit coming at things from slightly different perspectives.
“End-investors, by definition, do not want to manage their money themselves – they want expert advice for what they are looking to achieve and they want to make sure everybody they deal with knows, and is transparent about, what they are delivering. Then, once the appropriate timeline to judge matters has been agreed on, it comes down to the balance of what is out there versus what risk people are willing to take.”
This take on retail investing puts a premium on effective communication between all parties but who has most responsibility for driving this? “We all do,” replies Stainsby, who joined Axa Investment Managers as head of UK client group in 2016 after 16 years at JP Morgan Asset Management, ultimately as head of UK institutional business. A four-decade career that began at Schroders also took in a spell at Lloyd George Management.
“It is wrong for anyone to dodge that responsibility but let me start with asset managers,” he continues.
“Asset managers need to be clear what they will realistically achieve and how long it will take to do so – and we must be prepared to adjust that according to what the markets will give us. In the end, there is a very clear need for asset managers to add strong amounts of value, in order to justify their position as the experts in the market.
“We also need to convey our message – why and how we are going to do what we do – in two different ways. If we talk directly to the clients, which some asset managers do, then we have to keep it plain and understandable – and that is not easy. When you talk to financial advisers, though, that conversation should be more in-depth – and the advisers should really challenge us on what we tell them.
“If an asset manager expects a difficult period for the markets, for example, they need to explain why they see things that way and what they are going to do as a consequence. Equally, the conversation between financial adviser and end-client also needs to be two-way. It is only right that advisers ask lots of questions of their clients – and only right to expect the clients try to answer them fully.
“But whereas, by its nature, the asset manager-adviser conversation will need to be more sophisticated, the conversation between adviser and end-client needs to be just as unflinching but focus on the simple questions that need answering – risk, timeframe, where the investment under discussion fits in with the rest of a portfolio. At heart, the financial adviser will be talking more about the end-client’s broader needs than pure investment.
“Having said that, there is no doubt the consolidation taking place across the financial adviser community is leading to a more complicated relationship with asset managers. And, by that, I mean conversations are less ‘one on one’ – the days where one person in a reasonable-sized advice firm talks to one person in an asset manager are gone.
“Instead, it is almost like a web of connections between two businesses – with multiple points of contact on both sides – and, if that is not handled properly, it can lead to confusion. Of course, if it is handled well and an advice firm and an asset manager have effective ‘many to many’ conversations, then you can end up with a richer interchange and a much deeper understanding of each other’s businesses than you might ‘one on one’.”
Asked how he thinks about delivering value for money to clients, Stainsby returns to his themes of transparency and timeframe. “First, it is about being clear what value you do add. For example, do you add value above a certain benchmark or because you are investing in parts of the market people do not typically have access to? Or do you add value from the cost of trading, say? That is a consideration less widely discussed by investors.
“There is also transparency in terms of simply being clear what your fees are – and then there is the question of timeframe. We all know value is not delivered evenly but in, shall we say, lumps – so over what time period is it reasonable to judge that? As I said at the start, clients do not want to manage money so they will pay a certain amount for it to be done – for advice, for constructing the right combinations of assets and for execution.
“So what is the right price and is it justified, given the return they are seeking over time? If the price is a big part of that end-return, it is probably not the right outcome. If it is in balance, though, then it probably is. This is not a conversation anybody should avoid. It may be my Yorkshire roots coming out here but, if you can ask the price and you know what you should receive in return, then you can either say ‘yes’ or walk away.”
Over his career, the asset managers Stainsby has worked for have had diverse ownership structures – bank-owned, independent, boutique – and that is true again at Axa Investment Managers. So can he identify any unique benefits to being owned by a global insurance giant? “It is probably a point we do not emphasise enough but the fact is, our business is owned by our biggest client,” he replies.
“What that means is they really care about how we look after all our clients – whether it be reporting on ESG to the highest possible standard, say, or trading as cheaply as we can – because they benefit, too. And so they invest in us to be able to do that. Investing in our reporting systems and our trading systems and so on is not the most visible part of the business, but Axa thinks it is important and all our clients benefit as a result.
“Also, given I am a client-facing person, I do not need to explain to the business how important I think clients are. What I need to do is ensure we achieve the right balance between what we want to do for other clients and what we want to do for our owner. With things like reporting and trading, there is a direct overlap but, when other clients need other services from us, I need to make sure they have as much of a voice as the Axa group.”
Over the past two or three decades, insurance-owned asset managers have often appeared to conclude the best way to win business is to camouflage their roots with an exciting new brand. To be fair to Axa, which established its ‘Investment Managers’ arm in 1997, it has always stayed true to its name, but how does Stainsby think about brand – and indeed culture – in asset management.
“Generically, I think asset managers have a very confused brand. Relative to consumer goods companies, say, not many asset managers have a strong brand – perhaps because we are not a truly consumer-facing industry. When I talk to most people about my own job, unless they are in investment themselves, they do not really know what I do – which, by definition, limits the claims I can make on brand.
“Within asset management, however, the question is whether your brand means you stand for certain things among the communities you work with – and it is what you do over time in this business that builds your brand. Reputations need to be carefully built up by doing the right things but can be very easily destroyed by doing one wrong thing.
“Culture is different – more internal – and, in my eyes, much more important than brand. Culture is really about the framework you set for thinking about your business. To me, there are certain cultural elements that make for a successful investment business – and, again, these take time to build and develop. One element is openness within the organisation – are we really honest with ourselves about everything we do?
“Humility is also important. There will always be people in this business who brag about what they do but, in the end, the markets are the test and they will find you out. Investment markets can be brutal – far more brutal than most people imagine – and, if you do not have a certain degree of humility, you will be very vulnerable to failing that test.
“The final element is teamwork. I do not think one person can really know enough to succeed any more – so people must build good relationships with their team, know their place in the team and fulfil that.
Honesty, humility and teamwork are the cultural elements I personally value most and, frankly, I am not sure I would compromise on any of those to work in any business.”
Cultural considerations aside, what businesses does Stainsby see as the likely winners in asset management over the next decade or two? “The way society interacts with financial management is going to change,” he begins. “Increasingly, people want their capital to deliver a purpose as well as financial outcome and the firms that can get that right will do well. It will not be the only consideration but the expectation will be there.
“Another thing – and I appreciate this is necessarily vague – is that any 10-year period throws up one or two big themes that affect markets very dramatically. Looking back over the past 10 years, you might say technology and lower interest rates were the strongest drivers of returns and so, if you were on the right side of those, you were likely to have been successful. Just being on the right side of the next themes will mean you also do well.
“There is also the fact that the way we work has changed quite dramatically. People do approach work differently now and asset management is a people business. So perhaps the most successful firms will be those that make sure their people really want to work for them while those that are not so open to providing the right sort of work environment could struggle.
“Finally, client relationships will be key. Given everything we have talked about, I would expect most winning asset managers will be those that have ‘clean’ relationships with financial advisers and end-investors. I do not mean ‘clean’ as in ‘not crooked’ but just more effective and more efficient. Too many people are still not that comfortable with asset management as an industry and so businesses that can address that should thrive.”
HOW FIXED INCOME HAS CHANGED
In the decade and a half since the global financial crisis, bond fund managers have had to work increasingly hard to convey the attractions of their specialist field. Low yields, near-zero interest rates in the world’s major markets and question marks over fixed income’s diversification benefits had even led some commentators to call time-of-death on that investing stalwart, the 60/40 portfolio.
Now though, argues John Stainsby, investors and their advisers are going to have to reassess the asset class. “We are in a period where fixed income has changed totally,” he explains. “From a year ago to now, it has probably changed more than anything else – and what I mean by that is it has become a hugely important part of investment decision-making going forward.
“Before that, through such a long period of low interest rates – and particularly towards the end – nobody really wanted to make a decision about fixed income. People could see the potential rewards were always going to be there but a period of adjustment was needed – though nobody ever thought it was going to be anywhere near as quick or as violent as what we have seen.
“Now it has taken place, however, this is a really good time for that triangle of asset managers, advisers and end-investors to come together and have proper conversations about fixed income once again. It is ironic – though often the way with these things – that, the moment you start seeing articles about ‘the death of 60/40 portfolios’, you can start making a strong case for them once more.
“The problem was the fixed income part, which was less likely to give you the diversification it had in the past. And yet, from here, I believe it can. So having had this reset – and let’s face it, it has been very painful – we can now argue that, going forward, the right balance of fixed income and equities can again offer solid diversification benefits, which can then help build better outcomes for clients.”
Another legacy of the global financial crisis and the world’s attempts to limit its fallout, notes Stainsby, relates to the cost of trading. “This is something that is still not talked about very much in relation to fixed income markets,” he continues. “Yet because of the very unusual period we have been through, with central banks having pumped liquidity into the markets, trading – particularly in fixed income – is quite challenging.
“The way fixed income is traded now is very different to how it was done historically and, when people have had to trade quickly in recent months, they have seen clear pressures on costs. Technology should help here, of course, but businesses do need to address this issue because you do not want to take too many bites out of a 6% or so return on fixed income – and if one big bite is trading costs, that is not a good outcome for investors.”
Q. What is the best piece of advice you have ever been given?
Essentially, to follow my instincts. We are a very thoughtful industry but it is also about judgement so, when you need to make a decision, make it.
Q. What would be your ‘top tip’ to PA readers to help them run a better business?
Ask the right questions and make sure you get real answers to them.
Q. What single issue should most concern professional investors
We have a productivity problem in the UK, which means this country has been, and continues to be, held back versus its potential. When we solve that – and I think we will – this is going to be a great place to invest.
Q. Does anything about your job keep you awake at night?
I sleep very well – but maybe that is because I am a risk-taker. I work for a risk-averse company but, deep down, I am prepared to take positions on things. If you keep second-guessing yourself all the time, you will not sleep well at night.
Q. What most excites you about your job?
The people I work with in combination with the challenge investment markets offer, every single day – from the very first day, I have always been excited by that. And I am just as excited today.
Q. If you were head of the FCA, what would be your priority?
To think harder about the bigger picture.
Q. What advice would you give to someone starting out in investment today?
The most valuable knowledge I have gained has come from studying the markets at close quarters. Investment is a very challenging area and, the more time you spend with it and the closer you get to it, the more you will understand it.
AHEAD OF THE PACK
After spending much of the first 20 years of his career working with American clients and with his responsibilities now including Axa Investment Managers’ business across Scandinavia, John Stainsby reckons he has experienced the full spectrum of attitudes towards ESG investing. “The Americans are genuinely polarised on this topic whereas there is a singular view from our clients in the Nordic markets,” he says.
“They want ESG incorporated in their portfolios – to the extent they do not really debate it anymore – and, while the UK is currently a bit more in the middle of these two perspectives, it is heading towards the Scandinavian model. It would be a rare instance of UK investors not taking their lead from America but I just do not see us going that way – investors here will see ESG as something they will not do without.
“The question then is, what do people want from ESG investing? Do they really want their capital to help drive change – or do they just want to run with the pack? That, I think, is where clients may not be so clear and, to me, that is the conversation they need to have with their financial adviser – and I would add there is something of an age-related element to that conversation.
“In fact, one of the things we talk about in the business – and it is a fairly new development – is the extent to which we should be thinking about the next generation of savers as well as the current one. Obviously, from a business point of view, we want savers to stay with us when assets get transferred across generations. We still have a retail book and, with a lot of those relationships, the client’s age is over a certain number.
“As a result, we are talking much more with investors about whether their money is being invested, not just for them, but also for the subsequent generations they expect those assets to go to. And, with those younger generations, the view is quite singular – they want to be a part of the change and so ESG and sustainable features need to be incorporated into portfolios.
“That is the way forward for our industry – to ask, in addition to current views, how much should portfolios reflect a future view of how businesses and communities will change, such that you take advantage of the financial rewards by being early. To me, you should get a financial reward by being earlier and not running with the pack. ESG investing must not be at the expense of good financial outcomes – though I would argue it is probably deeply intertwined with delivering
good financial outcomes.”
This article first appeared in the December edition of Portfolio Adviser Magazine