Having been semi-retired for five years now (hard to believe how time flies) but still very much engaged with investing — as I have to be, since I don’t have a final-salary scheme — I remain amazed at how self-imposed rules and regulations, supposedly designed for retail clients, make investing and retirement planning so much harder.
I’ve mentioned before the inability of platforms to properly support decumulation. By and large, you’re left to work out for yourself how to take money out of your account. There’s no simple option to receive a regular monthly income across all your holdings.
Then there’s the peculiar distinction between being a retail client and being a professional. As a retail client, you get reams of compiled reports from fund managers — usually boring and not very useful — while professionals see more detail and opinion.
Once you retire, you are no longer deemed “professional”, which means you can’t see broker reports and opinions, unless of course they’re leaked to journalists, who are apparently considered clever enough to understand everything.
My old platform at HL, and most others as I understand it, won’t mention a new fund until it’s three to five years old
Easy-to-read performance tables showing short-term fund performance aren’t allowed because retail clients are considered too easily misled, or so the FCA says. That means we lose out on spotting new trends.
Yes, you can dig into various websites and enter the details yourself, but we have lives. Platforms could provide this easily if compliance and regulation weren’t so heavy-handed.
The contradictions don’t stop there. Take new funds. My old platform at HL, and most others as I understand it, won’t mention a new fund until it’s three to five years old. I’m not talking about promotion — just basic information.
Yet I can easily sign up to hear about new VCTs, IPOs, gilts and all sorts of other investments. Why not about funds?
Surely telling clients about something like Ben Whitmore’s new company, Brickwood, and its two fund launches would be useful. The fear of another “Woodford effect” looms large, and nobody wants the business risk.
When I worked in the 1980s and 1990s, our research showed most new funds outperformed in their early years
But professionals are supposed to be in the risk business. By refusing to even mention a fund for its first few years, platforms ensure clients could miss out on strong early performance.
When I worked in the 1980s and 1990s, our research showed most new funds outperformed in their early years. Perhaps only promoting them after five years means you’re left with the underperformers. Look at Terry Smith and Nick Train as examples of strong early performance. Buffettology, less so.
If we move from funds to investment trusts, the picture is just as contradictory. They were hailed as the saviours of the investment world after Woodford, with independent boards supposedly making them safer.
Fast-forward to today and the cracks are clear. Remember Home REIT? In 2021 alone, over £2.5bn was raised for new investment trust launches. The hangover has been painful: huge discounts, mergers, acquisitions and investor losses.
The lesson? Most IPOs of investment trusts turn into disasters. To raise enough money at launch, they need to be fashionable or backed by big names. In 2021 it was less about names and more about the fashion of low interest rates and ESG.
Retail investors face a vacuum of information because we’re deemed too dumb to handle it
As fashions changed, the “alternative” sector turned calamitous for many investors. History offers plenty of warnings: the European Privatisation Trusts, Smithson (the biggest launch of all), and many more.
Today we’re left with open-ended funds that are hard to launch because few dare mention them, and closed-ended funds that can only seem to launch at exactly the wrong moment. To be viable long-term, a trust needs to raise at least £500m.
And amid it all, retail investors face a vacuum of information because we’re deemed too dumb to handle it.
Perhaps we should be grateful the same thinking hasn’t completely stifled transport — though with restrictions you could argue it’s heading that way — otherwise all cars would be limited to a top speed of 10mph.
The one potential saviour in all this? AI. If platforms and intermediaries can’t or won’t provide the information, AI surely will.
Mark Dampier is an independent consultant and can be found tweeting at @MarkDampier
