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The benefits of hindsight
George Liondis
Fund manager performance can be a very subjective issue, despite the fact that return figures are easily accessible, and should be able to provide some black and white answers.
For advisers, it is easy to see how a manager is doing this month, or even this year, but trying to pick a consistent performer can seem like a losing battle.
And the situation is only confused by the reams of marketing material distributed by the funds management community.
As Portfolio Construction Forum
’
s Deirdre Keown points out, “it’s not unknown for fund managers to cherry-pick the best returns from a particular period when promoting a fund”.
This can also make it enormously difficult to compare like with like – an exercise advisers will be increasingly tasked with in the super choice environment.
We all know that past performance is no guide to the future, but our review of multi-sector funds (see page 18) did highlight some interesting trends.
While the results show no consistency in absolute returns over time, some fund managers consistently outperformed their peers, achieving top decile returns over the five-year period. At the other end of the scale, there was also a tendency for certain investment houses to continually underperform.
A thousand different factors can affect investment performance, and there are exceptions to every rule. Still, historical performance does provide advisers with a valuable tool. It may be impossible to make fund managers accountable for the future, but you might get some straight answers if you come well-equipped with knowledge of their past.
St Compliance
THE revelation that one of St George Bank’s most senior financial planners has lost his job, after allegedly recommending unauthorised investments, serves as a reminder that all the new layers of regulation are there for a reason.
The financial services industry can whinge all it likes about the cost and time wasted under the new fee disclosure, advice trail and conflict transparency rules. The general public doesn’t care about the extra sweat under our white collars, it just wants to know its life savings are in honest, dependable hands.
Even if they didn’t read every page of his Statements of Advice, or peruse all the fine print of the Product Disclosure Statements he offered them, most people were going to believe what they were told by a man with the Happy Dragon on his business card.
They had a right to trust him. If one of Australia’s largest banks doesn’t have the systems in place to catch risky, unauthorised recommendations, then what institution does?
If it emerges that the planner was able to get around St George compliance systems, the bank will need to act quickly and decisively to reassure its customers.
Now charged with the civil responsibility of choosing its own retirement arrangements, the Australian public deserves a fair go when making these big, heart-rending decisions.
29 June 2005
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