Fundweb article: Are fund managers needlessly complicating things?

The acronym “Kiss” – keep it simple stupid – is often used by marketers, but perhaps it should also be used by investment managers.

We work closely with advisers to ensure that our products meet the needs of themselves and their clients. What we’re told advisers and clients like includes; the post-RDR must that is transparency, a fee structure whereby 100 per cent of the client’s investment qualifies for potential tax reliefs and, interestingly, products which are easy to understand.

We take all of these points to heart but, for the sake of these ramblings, the item of most intrigue is this notion that advisers and investors like easy-to-understand investments.

I guess this shouldn’t be a surprise, after all who would really feel comfortable investing their money in companies which generate income in ways the investors doesn’t understand?

I believe only the most experienced of investors or the most financially analytical would do so.

For example, UK retail investors investing in the Chinese market are most likely to do so through a ”China fund”; with the relatively simple to understand description that China might be a suitable place to invest because “the Chinese market continues to grow, with increasing output, increasing employment, etc.”.

Investors will rarely attempt to understand the intricacies of each underlying Chinese investee company.

This same rule of “keeping it simple” is why our renewable energy products to date have been either wind or hydropower focused.

As a case in point; in part, and after extensive consultation, we chose to create a hydro EIS as the concept of hydropower is easily understood: The river flows, water turns the turbine, power is produced. Hydropower electricity generation has been utilised for decades and rivers have of course been used to generate power in its simplest form for centuries.

Financial matters should never be dumbed down and providing investors with appropriate information about what their investments are doing is important.

However, it should be remembered that making investments understandable is what ultimately empowers investors to make suitable investment decisions.

Ian Warwick is Managing Director at Deepbridge Advisers Limited


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