This week has seen a flurry of full year and interim reports. I, for one, would be happy to not see another balance sheet for a good few months. One theme is consistent throughout all the results. Negative market movements have impacted assets under management and profitability.
Given the current macroeconomic environment, this is hardly surprising. There is a war in Ukraine, inflation is at a 40-year high, and Covid-19 still looms. Markets have taken a beating and this has impacted investment performance.
It is always said it is harder to spot good investment managers when markets are performing well, but arguably it is equally hard to tell when markets are not.
Benchmarks can help, but these rarely tell the whole story. Firms can pick a particular benchmark that fits their narrative and one that they will hopefully outperform.
Comparing firms also proves challenging. You are rarely comparing like with like. Different investment strategies and risk tolerances will perform differently depending on the market movements.
Equally, looking at the change in profitability will not give a clear picture. Sole investment management firms will be impacted far more than those with banking licenses – who can take advantage of rising interest rates – and those with wealth planning offering.
Perhaps it will be in the recovery period that firms will distinguish themselves. Those that bounce back quicker may well be managed better. Some may also be able to find opportunities and deliver positive returns – or at least smaller losses – in this period.
This all goes to suggest it is very difficult for clients to distinguish between firms when it comes to investment performance.
What they can distinguish is the difference in fees – or at least they can try. Fee transparency is still not where it should be, given firms all operate under different charging models, making it harder to see which are more expensive than others.
Clients can also compare the service they receive and the level of communication they have with a firm.
Given the difficulties with comparing investment performance, it is hardly surprising firms are increasing their focus on client service and care.
