Exotic bread recipes are not necessarily the first thing you would expect to crop up in a chat with Phil Wagstaff yet, here we are, on the subject of sourdough with cranberries – not in terms of proportions, cooking times and temperatures, it should be added, but as a way of illustrating what Jupiter’s global head of distribution views as the principal, though by no means sole, challenge now facing the asset management sector.
“The industry is under pressure,” says Wagstaff, who has held senior distribution roles at M&G, New Star, Gartmore and most recently Janus Henderson, where he worked closely with chief executive Andrew Formica – a partnership now resumed since he joined Jupiter last May. “There are issues relating to macroeconomics, to the threat of recession, to trust and to value for money but the main one, I believe, is price.”
Stepping back briefly – and not for the only time in the conversation – Wagstaff stresses the importance of managing expectations. “If intermediaries, clients and asset managers cannot all work together, we are in trouble,” he says. “We cannot build things intermediaries and clients don’t want. Intermediaries cannot ask us to build things clients don’t want. And clients can’t ask for things that are unrealistic or impossible for us to build.
“Somehow, we must reach a point where we aim to design products that work for everyone – and in the context of price, there is an overall number a particular client will pay. Maybe it’s 1.25% or 1.5% or 2% but everything must fit into that – and there’s the rub for active managers. Let’s say the cap is 1.5% with an advice element of 0.75% – that means, with other expenses, you have to hit 0.65% for investment management.”
The point that can be missed here, suggests Wagstaff, is that 0.65% figure relates to the overall construction of the portfolio, not each element within it. “So you could have, say, elements of passive at 10 basis points [bps], bonds at 30bps, active bonds at 50bps and active equities at 75bps – and asset managers then have to ask themselves where, as businesses, they want to play.”
We have the goods and we charge accordingly
For Jupiter, the answer to that question is active bonds and active equities, which leads Wagstaff on to the subject of bread. “Of course people will want white sliced loaves but there are also people who want sourdough with cranberries, and that is what we are catering for here,” he says.
“We have skilled fund managers delivering bespoke, high-conviction, high-alpha portfolios with limited capacity – and we are charging accordingly.
“In doing so, we recognise we are not going to supply every aspect of a client portfolio but we do not have to conquer the world. We don’t have to sell millions of loaves a day – just a small number at the right price. So if passive is ‘pile-it-high, sell-it-cheap’, fine. We are not in that market. We want to be at the premium end and there is definitely room for companies here – providing you deliver the performance.
“If you charge for being high-active, high-conviction, high-alpha – for sourdough with cranberries – then you cannot not deliver. And I believe there is a lot to be said for being focused on this and not trying to be all things to all men. We are not in the business of advice, we do not own a wealth manager, we are not owned by a bank or a life insurer and we don’t do passive – so we are pretty clear about where we are.”
Mrs Miggins has a different view of value to professional fund buyers
From this, it also seems pretty clear Jupiter has been thinking hard about value for money – hardly surprising, given the rules that kicked in from January requiring asset managers to publish an annual ‘assessment of value’ as the Financial Conduct Authority takes its shot at conjuring up some objective criteria for a notoriously subjective concept.
Wagstaff sees an interesting dynamic here that springs from the way asset managers run money relative to a market or peer group. “There are two types of clients, aren’t there?” he says. “The professional buyer, who is judging asset managers on whether we have beaten our benchmark but there is also the underlying client – and all Mrs Miggins from Hull cares about is whether her money goes up or down.
“What you will end up with is the entire industry putting out statements saying, ‘We think we have delivered value for money to you, Mrs Miggins.’ And her going, ‘OK… but the ten grand I put in last year is now worth nine and a half. How is that value?’
“The regulator is telling the industry to judge if we are delivering value but the criteria we use may not be what is in the mind of the client. The entire industry operates on relative returns but the client wants absolute returns, which plenty of funds have tried as an investment style and plenty have failed to deliver.”
That is the second time Wagstaff has mentioned managing client expectations, so how does he believe fund groups can best do this? “With transparency and communication,” he replies. “We have a duty of care to the end-client – irrespective of whether or not an intermediary is involved – so outcomes are hugely important. As we have seen, if fund groups lose the confidence of the end-client, then the whole industry suffers.
“You have to focus on what people want and then make sure you are very clear about what you are doing and how you are doing it. Does what we are doing with a fund reflect what the underlying clients would be expecting us to do with it? And I don’t just mean in a legal or a prospectus sense, I mean morally and in spirit.”
‘When people say fund managers have no controls, I get incensed’
Reluctant to point too specific a finger, Wagstaff settles for regretting how the asset management sector can go through phases where it loses client trust. “Whether it is the tech boom, the global financial crisis or whatever, from time to time we tend to shoot ourselves in the foot,” he says. “And that plays into the hands of the naysayers – people who do not believe in active management or stockmarket investing.
“They then get carried away, so now all the talk is about liquidity and corporate governance and yet, for the great companies, these have always been crucial considerations.
“When people say fund managers have no controls, I get incensed – that is just wrong. Think about the levels of governance we have in place – the oversight, the personal responsibility we have with SMCR and as ‘code staff’. We bear a huge weight of responsibility.
“As for liquidity, one thing I would say is anything can become illiquid if everybody suddenly wants their money back at the same time – even the big banks. I mean, what is the Tier 1 capital ratio for a bank, 15%? If more than 15% of a bank’s customers want their money back at any one time, they will not be able to have it. That is an important point to recognise.
“Still, like all the conscientious companies, we have always been focused on liquidity, governance and on doing the right thing. That is not something a regulator should be making you do, it is something you should be doing anyway. Having worked in the industry for 30-plus years, I find it personally disappointing things occasionally happen that just destroy trust, because it is not the case that our industry is like that.”
Staff should focus on the client rather than their bonus
Inextricably tied up in all this is building an appropriate culture within a business, which Wagstaff sees as “absolutely critical”.
“How people feel about what they do for the firm and their focus on clients is vital,” he continues. “Questions like, ‘How much are you paying me?’, ‘When are you going to promote me?’ and ‘What have you done for me recently?’, that is all just wrong.
“It has got to be more like, ‘I was looking at this the other day and I reckon the client would enjoy a better experience if this happened’. Now, putting the client at the heart of everything you do is of course easier to say than do, but the right cultural set-up involves having people who are focused on going on a client journey with us, not on the size of their bonus.
“After all, how do you differentiate yourself in this business? You can do it by price, which, as I have said, we are not prepared to do at Jupiter because we are not making white loaves – or, presuming performance has to be a given, you do it by service.
“To build a successful business, it has to be about partnerships. We are no longer in the business of turning up saying, ‘I have got one of these for you – do you want to buy it?’ It has to be, ‘What are you looking for? What are your problems? What are your challenges? Who do you want to partner with?’ In effect – what ‘Intel Inside’ do you want in your offering, as an intermediary, that we could help you build?
“We have to make sure we’re building things for the future – and, if the future is things we don’t currently build, then we will start.”
If that is Jupiter’s future, what does Wagstaff see in store for UK asset management in general? “More M&A,” he replies. “There is oversupply yet margins are high, which means remuneration is high, which has implications for value-for-money. This all leads to just one outcome: consolidation. We have already seen it with Aberdeen and Standard, Janus and Henderson, Premier and Miton, Liontrust and Neptune. . .”
Demographically, meanwhile, Wagstaff believes financial services is well-placed. “People are going to have money, they are going to inherit money and they are going to need to invest money,” he says. “At the same time, there is a macro shift from government support of individuals to ‘self-help’ – having to look after your own pension, your own savings and your own healthcare.
“All of this is putting pressure on people to save for the future. So that leaves asset management and financial services in general in a good place. Still, as I say, there is oversupply and consolidation is only going to accelerate. But, within that, there will be room for small, attractive places for people to work that can do the right thing by investors.”
Quickfire Q&A
What is your ‘top tip’ to professional investors to help them run a better business?
Put yourself in the shoes of your client at all times.
What single issue should most concern professional investors at present?
Global trade wars and the consequences of Brexit.
Does anything about your job keep you awake at night?
I sleep soundly most nights!
What most excites you about your job?
The interaction with people. For me, dealing with clients as well as the team around me is the most energising part of the job. It always has been.
What advice would you give to someone starting out in investment today?
The more you put in, the more you get out of the industry – in fact, I told my daughter that not so long ago.
What is the best piece of advice you have ever been given?
‘Be yourself.’ Or maybe, ‘You dance with the devil when you speak to the press!’
