A short history of asset management (in my lifetime) and why the future looks quite so uncertain. This is the first of two blogs based on my research for a panel I will be chairing at our Global Borrowers and Bond Investors’ Forum in June.
Part 1: Et in arcadia ego
When I took my first baby steps in the City of London in the mid-1990s - doing work experience for an uncle at what was then still called a stockbroker - it was to me a place of awe and wonder. As a child I had been reared on stories of gents in bowler hats and sponge-bag trousers - my word is my bond - swinging tightly furled umbrellas as they made their way to civilised lunches.
Of course it was nothing like that in 1996, when I made my way through the doors of that, now defunct, stockbroker as an awe-stuck 20-year-old. All that stuff had been blown away with the Big Bang a decade before – along with fixed commissions and open outcry trading pits. My mother was aghast that my uncle refused to wear a bowler, like his father had. His grandfather had worn a top hat. But some echoes of that genteel past still reverberated, even then. It wasn’t all red braces, cocaine-fuelled loo breaks and Porsche 911s.
One event that stands out is an investor roadshow I attended for the imminent IPO of the mobile phone company, Orange. We pottered along one afternoon to somewhere or other in the Square Mile to listen to the then Orange board try to convince us to buy their shares. The problem was, it was 3pm and my uncle and I had just returned from a lunch that consisted of three courses, two bottles of very good claret and about a half a bottle of tawny port. I fell asleep. So did my uncle, I think.
When it was over he and I meandered back to the office to see what the markets had done that afternoon. Not a lot. I met a chap whose dad had been a porter at the firm back in the 50s and 60s. He’d started out cleaning the brogues of those sponge-bagged gents for pocket money, but was now heading up the firm’s trading operation. Other brokers – young and old – were scattered liberally about the room, draped over their chairs. Some were talking idly with clients on the phone, others reading The Sun – all of them with their feet up. And all of them recovering from various extended lunches in various City eateries. The only woman present was an aged secretary, a proper East Ender, who was doted on.
Once we’d established that nothing much had happened, market wise, it was time to go for a drink. I seem to remember, in all the time I worked at this brokerage, there were no sudden movements. It was like working among a colony of be-suited sloths. When the idea of a drink was suggested, there was scant reaction. Somebody might have nodded quiet assent, or folded down a page of The Sun and peered over but, other than that, not an eyebrow stirred. My uncle and I slid out the door together and headed to the pub across the road. We were alone, at first, but it wasn’t long before a slow stream of brokers eased gently into the bar. The office somehow evolved into the pub.
“How do you make money?” I asked, somewhat vulgarly. “Well, since you must know,” one of the stockbrokers said (the one who’d spent the afternoon reading The Sun), “When a client calls up and asks us to buy or sell a stock, we charge him a fee for executing the trade. If he says ‘shall I buy or sell this stock’ we charge him another fee, for advice. We call it advisory dealing.” And that was how it worked. Despite the end of fixed commissions in 1986, fees remained healthy in 1996 and competition to this model of doing business was non-existent. The idea that an ordinary punter might trade off his or her own bat was an impossibility, back then. In short, life was pretty good for stockbrokers back in 1996.
My uncle is past retirement age now. The family firm he worked for from 1969 onwards was long ago chewed up and spat out by bigger fish. He still works though. The only difference is he’s no longer called a stockbroker but a wealth manager. Lunches – no longer long and languorous - tend to take place at his desk or in a local sandwich chain. Nobody would dare be caught reading the Sun anymore. And he spends more time deciphering RDR, Mifid 1 and 2 and endless nonsensical edicts from senior management than he does making money from markets. The questions is, are his clients better off as a result of all these changes? I’m not entirely sure that they are.
In the second part of this blog I will be looking at the five chief threats to the asset management business and how the industry should react to these threats. Falling fees, rising costs, regulation, technology and increasingly furious competition. The next blog will have more hard data and facts than this self-indulgent trip down memory lane.