Now, is not a particularly good time to be an asset manager, thinks Toogood, managing director at The Adviser Centre and CIO of the Embark Group.
Increasingly, managers are narrowing their portfolios because they have “more conviction in fewer stocks,” part of the reason they have “abnormally high cash levels.”
And more and more, fund groups are forced to consolidate as a matter of self preservation, he believes.
Toogood said:“These mergers are happening when markets are roaring. Why? Margin pressure. Consolidation is inevitable because of scale and regulation is getting harder.”
Mergers like those of Henderson and Janus and Standard Life and Aberdeen are “classic and will carry on,” he added.
“If you want the FCA’s view of the world, on the adviser side, if they had five St James’s Place’s, they’d be ecstatic. It would be much easier to control."
However, Toogood doesn’t think this is the end for active management, which he says has always been “an expensive privilege.”
If fund managers want to survive in the stricter regulatory climate, they need to change their focus from “accumulation” to “outcome” as the IFA industry has already done.
“The term of trade for an IFA used to be ‘accumulation’ and ‘build a big pot.’ Today, it is all about – I’ve got the pot, what do I do with it?"
Post-financial crisis regulation like the Retail Distribution Review was the catalyst for changing this objective within the financial services industry.
“RDR has emphasised the fact that the IFA job is planning, not investment,” said Toogood.
“So why do some people think financial planners are supposed to do a planning job, cash flow analysis, work out the second home, educational fees, etc. and, also, be the most gifted investor since Warren Buffet? It is totally, utterly ridiculous.”