Why asset management should care more

“Shall we continue in English?” she asked politely.

“What did I say?”

“Well you told me that you had brain damage”, she said apologetically. “And that you need a cure”.

Good grief! It was my first night in Zurich and I had just enquired about having a lobotomy.

Perhaps she thought I needed one. But thankfully she had no interest in drilling a hole in my head – she was a pharmacist.

Truth be told Google Translate had failed me and the onslaught of an almighty migraine was coming. I was, however, genuinely grateful for her patience.

“I think you have a headache”, she said politely. “And that you need some painkillers”.

And that was it! Problem solved!

I work in an industry where a little bit more patience and understanding would help. It’s not that we don’t try. But sometimes unnecessary barriers have been created that prevent us from doing a better job.

You can start with its name: “asset management”. Very few normal people outside the financial sector actually know what it is.

I don’t blame them.

Not one bit.

The name is horrible. It’s a piece of jargon.

How can you contextualise such a phrase?

As soon as I explain that “we invest on behalf of people”. Or that “we manage funds that people invest in”. Or even that we look after the “investment portfolios for people’s pension funds” that it sudden dawns on them. They understand!

My job is to help companies in this industry communicate better. I am an investment writer. However at times, this task can be excruciatingly painful because we can be so out of touch with our investors.

We can make what we do sound so complicated. The problem is that it doesn’t make us sound more intelligent or legitimate. It just makes us more out of touch.

I remember once listening to a CEO from a former employer explain that our industry “sell financial products”.

I’m ashamed to admit that I’ve heard this definition far too often. I absolutely hate it. I am an investor myself, and I can assure you that I’ve never bought a financial product in my life. I have no idea what such a thing should look like. I’ve never walked into a shop and bought a “financial product” of the shelf.

However, I do invest in some brilliant companies thanks to the help I receive from some very talented portfolio managers and equity analysts. In some cases I have entrusted my wealth with them by investing in their funds. They have helped me pay off my student loan, get on the property ladder and I hope, allow me to retire one day in the future.

But here is what really makes me sad. My industry is likely to increase in importance in the future and yet it perhaps it isn’t where it need to be today.

Our world is rapidly changing in terms of demographics and wealth. China has come online with a billion people who have a 40 per cent savings rate. Meanwhile, our own populations in the developed world are ageing rapidly and having to save more for retirement than ever.

China has come online with a billion people who have a 4o per cent savings rate.

Unfortunately our governments have washed their hands on supporting our pension provisions. Once upon a time, the company you worked for took responsibility by putting money in a corporate pension plan for you.

Nowadays, they put a little money aside, but it’s more profitable for them to make you take responsibility of the final outcome for your pension portfolio. There is no safety net now and our governments have turned a blind eye.

If there is any shortfall just before you retire then that’s on you. So if the market crashes just before you retire, tough luck!

Another issue is that the structure of capital markets has radically altered over the last 50 years. We now have a lot more debt, which means it’s going to more difficult for us to reach our financial goals.

Let me explain.

If you are a millennial like me, then there is a good chance that you feel a little lost financially. It’s understandable. The world we inhabit is so financially different from what our parents knew.

The first horrible aspect of it is the amount debt we have. There is now so much of it, and in order to get anything done you need to borrow.

The trouble is that you can’t remain indebted. Debt compounds the wrong way unlike asset wealth. So somehow you have to figure out how to become asset rich, perhaps like your parents.

The odds however, are stacked against you.

If you are like me, then you have started your working life heavily indebted. It’s not your fault. The cost of education is very expensive and we have no choice but to accept the expense.

It feels a bit unfair and a quite bizarre. Education shouldn’t be so expensive in this information age. After all, the Internet has made knowledge essentially free. Nevertheless you need to do this if you want to find a job – for now anyway.

Once you get hold of that job, you need to save like mad. First, you need to get rid of your student loan because it consumes a massive chunk of your disposable income.

Trust me I know.

Then you need to put a little aside so you can build up a deposit that will get you on the housing ladder. You don’t have to do this. You could rent. But again buying a property could form an important part of your future asset wealth. And renting is a bit like paying the interest on a really big loan with no repayment option.

Perhaps there might be a massive house market crash, but buying is still better than renting. You’re not going to get any richer by renting!

So, say you do finally manage to pay of your student loan and get on the housing ladder. Then what? Well if you get married and settle down, you then have to start saving for your kids future. Perhaps you will want them to go university or even be able to put a deposit down on a home like you have already done.

Finally there’s retirement. I don’t know why we have left this until last. It’s probably the most important. I know it’s hard to think about it and it feels a long way off. But now you’re responsible for your retirement portfolio. There is actually a very good chance that you will never retire. You could die while you are working.

What my industry will need to do is care more about the people it serves. It can solve these issues by offering better guidance on the goals our investors have.

People are saving more now than ever before in this uncertain world. But it will be an uphill struggle. Part of the problem is onerous regulation and increasing costs. But poor performance and lack of transparency has plague our industry for far too long. Perhaps it’s time to change how we serve our investors.

I have hope.

Change is on the way.

The best bit is, I’m going to be a part of it.