The repercussions of the Woodford debacle continue to be keeping the press boys and girls very busy and whilst I despise some of the comments that are both inflammatory and far too personal, the truth around the procedures undertaken by Woodford continues to throw up editorial gold. The damage done to the industry both for Asset Management and Wealth Management could take years to repair and yet, dare I say, this needn’t have happened if proper oversight was in place from the beginning.
Independence of thought and work is of course critical to the success of our industry as is with others. We work in an environment priding itself with very bright people who deliver exceptional service, product and initiatives for consumers and businesses alike. Some of them I have had the pleasure of working with either directly or providing product across this country and beyond.
Many of those individuals were at times challenging to deal with and other times downright obstinate and rude but you took it on the chin and hopefully you lived to tell the tale another day. Numerous people had very good lieutenants who in the words of one had “a massive broom clearing up the mess”. These lieutenants were there to ensure the business process was adhered to, whilst the ‘maverick’ created the ideas, the revenue, the glitz or whatever the ‘Special One’ dreamt up. But whilst this is fine in a small business that is looking after just its own clients, it’s certainly not acceptable when you step outside the inner circle and provide services/product to a wider audience.
How do we stop another Woodford, a ‘maverick’, a ‘control freak’, an ‘ego’ from running his own self-belief Fund AND putting the reputation the industry and the investments of thousands at risk?
The Central Bank of Ireland introduced over a year ago, (announced five years ago), the CP86rules and guidance in seven key areas:
- The rationale for board composition.
- Directors’ time commitments.
- Organisational effectiveness.
- Managerial functions.
- Delegate oversight.
- Operational issues.
- Procedural matters
The key point I take from this are the CP86 functions, effectively say to Management Companies and Fund Boards, “here are a list of Designated Functions that a Designated Person will be responsible for”. That is to say, their heads are on the block if it goes wrong. Now if that doesn’t focus the mind, I don’t know what does!
These Functions and the Designated Persons who are responsible revolves around the following 6 areas:
- Investment management.
- Distribution.
- Fund risk management.
- Operational risk management.
- Regulatory compliance.
- Capital and financial management.
These are key areas of responsibility and if adhered to, and managed well with regulatory reporting demonstrating evidence-based oversight, then no Fund Manager can go and rip up the market with excessive risk or breaking the moral compass with their ideas of getting a better return for investors. This is not rocket science. This how a business should be run particularly as the Shareholders are the ones who ultimately pay the wages of those managing the money.
So, a plea to Regulators everywhere and to all Fund Boards in the UK and elsewhere, let’s take up the CP86 ideas and embed them into the rules and regulations. We have the Senior Managers and Certification Regime (SMCR) coming into the UK very soon and there are some great aspects of this such as the Senior Management Functions (SMF) and the Statement of Responsibilities (SOR) but, I would advocate taking it further to fully embrace the CP86 rules. There is no hiding whatsoever and the challenging environment with independent Boards means that Funds are run within a strong regulatory framework. The issue is, of course, can a company launching a Fund take an independent rocket from a Fund’s Board to behave or suffer the consequences?
Meanwhile, the AIC has been making hay whilst the sun shines as they have talked endlessly about the liquidity issues of Investment Trusts as well as the Independence of their Boards. I agree with both points unequivocally and would welcome the same for all open-ended Funds. What is stopping the introduction of these? I think we need to get our house in order or at least check the foundations aren’t cracked before it’s too late and underpinning is required!
Have a great long weekend and may the sun continue to shine for the Bank Holiday.
Regards
Stuart Alexander
CEO