Chris Macdonald, chief executive of Brooks Macdonald, the UK wealth and asset manager, is more forthright than most of his peers when discussing the investment industry’s flaws.
The grandson of Tanzanian tea farmers, Mr Macdonald, who founded his company 23 years ago, is particularly concerned about the way fees are charged to investors.
The 54-year-old, who was born in east Africa but raised in Australia and the UK, says: “In a lot of cases, people have to work seriously hard to figure out the total expense of the service they are paying for.
“We have absolutely seen bad practices where certain [asset and wealth] firms are still opaque in how they operate and communicate with clients. These are firms we won’t deal with.”
Mr Macdonald, who says he mainly studied “rugby” during his three years as an economics and geography student at Loughborough University, an establishment best known for its sporting prowess, is similarly outspoken on the topic of trading costs, and in particular whether asset managers should include an estimate of trading costs in the upfront fees they charge.
Last year the Financial Services Consumer Panel, an independent body that advises the UK regulator on its policies, recommended that fund managers should provide investors with a “single investment charge” that includes transaction costs, which have been criticised for eating into investment returns.
Fund managers have long complained that trading costs are too difficult to estimate, but Mr Macdonald, whose company grew from £400m of assets at launch to £7.3bn today, has little sympathy for this argument.
“[Fund managers could] build that estimate into their annual management fee and charge 1.1 per cent instead of 1 per cent. You can do it, [and] we have done it for years,” he says.
“In our reports to clients, we estimate what [the trading costs] will be for the first 12 months. It is an estimate, because clearly you don’t know what the trading activity is going to be in times of extreme market stress, but they are reliable estimates.”
Mr Macdonald, who commutes to his company’s London headquarters from his home in Oxfordshire, adds that the institutional fund market is due a significant correction in terms of the fees it charges investors.
He says: “[The wealth sector] has experienced fee contraction, and I think it is genuinely good value for clients now. You could say I am bound to say that, but our fee rate is typically 1 per cent. The fees taper off the bigger the client, so people get value for scale.
“The institutional fund market absolutely has further to go [in terms of fee reductions], [but] I think there will be enormous resistance. It will take a long time.”
Another concern for the chief executive is the proliferation of new funds in Europe, where asset managers have been accused of launching funds simply to accumulate assets rather than to meet investor needs. There are 29,000 retail funds in Europe and just 9,000 equivalent funds in the US.
Mr Macdonald says: “There are too many funds in most sectors, and [the asset management market] could do with a shakeout. We are still seeing fund launches the whole time, and in the vast majority of cases, unless they are niche, they are not needed. Too many funds do the same thing.”
Mr Macdonald is not contrarian on all topics. Like many of his peers, one of the chief executive’s biggest complaints is the amount of regulation the investment sector has encountered since the financial crisis.
The forthcoming set of European rules known as Mifid II, and the UK’s Retail Distribution Review that came into force two years ago, were intended to improve how the asset and wealth markets operate for individual investors.
Mr Macdonald says both sets of rules are beneficial overall, but he adds: “From a purely selfish point of view, we would like to see the amount of regulation slowing down. I don’t think you are going to see any entrants in the industry, because of the amount of bureaucracy and regulatory personnel you need to run a business, and I think that is sad.
“The industry needs a period where it does not change quite so much. Clients become unsettled with the paperwork you have to keep delivering to them.”
Mr Macdonald is clearly sensitive to bureaucratic requirements that might annoy his client base, which was traditionally made up of lawyers but has since expanded to include footballers — a client segment he describes as “challenging” — as well as wealthy Qataris, entrepreneurs and media moguls.
He says some clients have been irritated by the company’s cyber security efforts, in particular the fact that they cannot place trades via email without also speaking to an adviser on the phone to confirm their identity. But cyber security is one area where he is willing to take the risk of annoying clients.
“We are terrified about cyber security. We act for a number of people who you would [have heard of], and if their personal affairs got into the public domain, that would be horrendous at every level. So we take cyber security very seriously and our project managers are constantly stress-testing our systems,” he says.
He admits that the industry has been slow to embrace technological change. “It is a fantastically dynamic industry and it has contributed a huge amount to UK plc, [but] I think there has been complacency,” he says.
Born 1961 Tanzania
Total pay £616,000 (2015)
Education 1979-82 BSc in geography and economics, Loughborough University
Career 1982-85 Investment manager at a national insurance and investment brokerage
1985-91 Investment manager and technical manager, Chase De Vere
1991 Established Brooks Macdonald (one of four founders).
Appointed chief executive
2005 to present Chief executive, Brooks Macdonald Group (after company lists on Aim)
Assets under management £7.33bn (September 30 2015)
Headquarters Mayfair, London
Ownership Aim-listed (2005)
Get alerts on Financial & markets regulation when a new story is published