In­vest­ments should be mar­keted re­spon­si­bly

Weekend Argus (Saturday Edition) - - FRONT PAGE -

IN­VEST­MENT man­agers have a duty to be stew­ards of in­vestors’ as­sets, and this in­cludes mar­ket­ing prod­ucts re­spon­si­bly.

The av­er­age in­vestor is in a vul­ner­a­ble po­si­tion. There is a con­stant ten­sion be­tween the need to save for re­tire­ment and the need to keep up with the ever-grow­ing de­mands on their fi­nances. In ad­di­tion, in­vestors have to cope with this ten­sion in an en­vi­ron­ment char­ac­terised by market volatil­ity that threat­ens to de­rail what was sup­posed to be a smooth jour­ney to a com­fort­able re­tire­ment. This ten­sion of­ten re­sults in in­vestors act­ing in ways that seem to make sense at the time, but threaten the suc­cess of their in­vest­ment strat­egy in the long term.

The reg­u­la­tory en­vi­ron­ment has changed sub­stan­tially over the past decade, and in­vestors can now see what is “in the tin”. They know what they are being charged for, they know about risk profiles and fund man­dates and other as­pects of in­vest­ment prod­ucts. How­ever, their de­ci­sions can still re­sult in a wide range of pos­si­ble out­comes.

Market and media in­flu­ences make it harder for in­vestors to make sen­si­ble de­ci­sions. The market is con­fig­ured to en­cour­age in­vestors to buy high and sell low, and it is un­com­fort­able to do the op­po­site. As if that were not enough, in­vestors are bom­barded with mar­ket­ing mes­sages that en­cour­age dys­func­tional in­vest­ment be­hav­iour.

Fo­cus­ing on short­term per­for­mance is a key fac­tor that pre­vents in­vestors from reach­ing their goals.

We, as in­vest­ment man­agers, take our role as stew­ards of in­vestors’ sav­ings seriously. We take a long-term view, do our re­search dili­gently, and al­ways aim to build a mar­gin of safety into all our in­vest­ment de­ci­sions. But is that enough? We don’t think so.

There are many ex­am­ples of wealth-de­stroy­ing be­hav­iour in volatile times that were driven by mar­ket­ing mes­sages de­signed to cre­ate fear in in­vestors. One ex­am­ple is the cap­i­tal flight into off­shore in­vest­ments early last year, when the rand weak­ened dra­mat­i­cally and these prod­ucts were ad­ver­tised ag­gres­sively. In­vestors who switched out of un­der­per­form­ing lo­cal eq­uity funds into off­shore ac­counts ended up worse off. Although their lo­cal in­vest­ment ini­tially fell, prompt­ing them to take their money off­shore, their off­shore in­vest­ment suf­fered when the rand re­cov­ered. In the mean­time, the in­vest­ment out of which they had sold per­formed well, pre­serv­ing its long-term track record and de­liv­er­ing on its prom­ise.

Re­spon­si­ble mar­ket­ing can make a real con­tri­bu­tion to better out­comes for in­vestors, by helping them to:

• Not switch in­vest­ments un­nec­es­sar­ily (sell out of one fund and buy into an­other);

• Take a long-term view and ad­here to their in­vest­ment strat­egy;

• Stom­ach short-term un­der­per­for­mance, which is of­ten in­con­se­quen­tial in the long run;

• Un­der­stand a fund man­ager’s in­vest­ment ap­proach, so that in­vestors can better se­lect funds; and

• Diver­sify their in­vest­ments, based on the un­der­stand­ing that cer­tain parts of their port­fo­lio will un­der­per­form from time to time, but other parts can com­pen­sate for this un­der­per­for­mance.

In­vestors are grown-ups with free choice, and mar­keters can put their value propo­si­tion for­ward in any way they want. How­ever, this does not jus­tify ex­ploit­ing in­vestors.

In­vest­ment mar­ket­ing mes­sages de­serve as much thought, con­sid­er­a­tion and con­sis­tency as the in­vest­ment process, and should be aligned with the in­vest­ment process.

In­vest­ment man­agers need to be as se­ri­ous about im­prov­ing the out­come for in­di­vid­ual in­vestors as they are about the per­for­mance of their port­fo­lios. Sadly, the two are of­ten far apart. Anet Ah­ern is the chief ex­ec­u­tive of PSG As­set Management.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.