The “Evolution and Experimentation: The Financial Advice Market in 2016” report has indicated the downside to star manager culture is now based around two main factors.
Firstly, there is the well-known risk faced by asset management firms which depend on a small number of star managers to attract inflows and retain clients. In the event these individuals leave, firms stand to lose large chunks of their AUM. Dissuading them from leaving typically means expensive salary and bonus packages.
The second element of the case against having star fund managers within a business is far less understood, and something the report sheds new light on.
According to FE's research, financial advisers are increasingly sceptical of star managers when investing client money. The research house said advisers are “not awestruck by big reputations” and are dropping star managers or abandoning major fund houses when they believe they no longer meet their clients’ needs.
Instead, advisers are “on the lookout for fresh ideas and approaches” which brings niche players more into their thoughts.
“These results will be especially interesting to the asset management industry at a time when we are seeing a rising trend from firms to move towards a more team-based investment approach,” said FE research manager Charles Younes. “Star managers, although high performers as the name suggests, are expensive and pose problems when they leave – succession planning, outflows to name a few.
“In fact, asset management firms see a star manager as one of the biggest individual threats to their business and at a time when there are already many potential issues in the horizon – it makes sense to take a team-based approach and mitigate possible future problems,” Younes added.