Then rising consumer awareness brought regulation and consistent labelling on packaged food. Which created more consumer awareness, a revolution in healthy eating and, last week, Dolmio advising consumers to only eat their pasta sauce once a week. Is the same going to happen in global asset management? Ian Henderson reads the label.
Millions of people invest trillions of dollars every year, mostly in pensions and ISAs. Most of them don’t think too much about what they’re buying; they take an adviser’s recommendation or buy from one of the big names. (That’s why over half the world’s money goes to the top 15 managers.) Finding out just what’s in a fund can be confusing – so most of us don’t look too closely at the label.
We take a different approach to our food shopping these days. We want to know what’s in our food – is it healthy, is it fresh, is it sustainably farmed, does it contain lots of hydrogenated fat, sugar and salt? But it was only in 1998 that EU and US regulation made labels carry ingredients, origin, allergy and other information. There has been a revolution in the way we choose our food over the last twenty years. Is the same about to happen to investments?
Advances in medical science made clear the link between food and health – so now we have ‘traffic light’ symbols, consistent international labeling and a lot of consumers who care enough to make informed choices about what they and their families eat. Consumer awareness has led to huge growth in organic farming, sustainable fishing and Morgan Spurlock in Supersize Me, finding out that when he lived on nothing but supersized McDonalds for a month he “consumed … an average of a pound of sugar a day.”
So let’s look again at investment funds. The FCA, IMA and other trade bodies around the world have taken a lot of stick for applying (potentially misleading) measures like the Total Expense Ratio (TER) as a way of comparing investments; and despite the amount of scrutiny applied to funds they are sometimes held to be too complex to be explained in a way investors can easily compare. (Although as Albert Einstein once said, “If you can’t explain it simply, you don’t understand it well enough”. And not many people knew about hydrogenated fat in 1998.)
That’s one explanation; a less generous one is that it’s not in the financial industry’s interest to be clear about what’s in a fund or what outcome an investor can expect. There are noble efforts to promote labels for sustainable investment, top (and bottom) performers get widely shared but nothing consistent has won support across the industry. Is that similar to the food industry’s previous reluctance to reveal just how much hydrogenated fat, salt or genetically modified material their food might contain?
What the food industry shows us is that consumer awareness and regulation can work together to drive positive innovation. A movement that could transform the financial health of millions of investors all over the world. The more enlightened investment firms could benefit too – from investors being clear about why some funds justify a premium, for example. The way regulation and transparency are heading, it’s going to happen. Smart investment firms should get in front of the change – before they have to eat it.