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| 'Providers' is our word for those
in the industry who provide investment products or services |
Investment product design is like car design. The
products are designed to fill a market need and priced so that everyone
in the food chain can make a living. Like cars, style and brand
matter as much as, maybe more than, performance. Style and brands
are expensive.
Fund Management Groups
Fund management groups (FMGs) create, sell, market and manage the
investment products that the private investor buys. A unit trust
is just a product - a collection of investments assembled according
to certain rules and packaged and sold accordingly. A precipice
bond is also a product.
FMGs also sell wrappers - ISAs or pensions. These
are like your Tesco shopping bag - they are not actually products
but wrappers (or ring-fences) in which to put the product.
FMGs have names you have heard of - Barclays or Invesco
for example. They are the brand.
Insurance companies
Insurance companies also design products - with-profits policies,
single-policy bonds, their own fund products. Although never described
as such, the collection of these products under one roof can be
thought of as an FMG. Confusingly, insurance companies often have
their own FMGs.
Fund managers
Fund managers are the people who actually make the investment decisions
behind the investment products you have bought. Fund managers usually
work for fund management companies (FMCs).
An FMG may use an in-house FMC or they may subcontract
to a third-party FMC. Either way the FMC makes its money by charging
a percentage of the funds under management. It may also charge a
performance fee.
When individual fund managers establish a reputation
they demand higher salaries and get poached by other FMCs. FMCs
raise their charges to pay for their expensive managers.
Now, when you buy a unit trust, are you choosing
the brand, the management skills of the FMG, the investment skills
of the FMC or the skill of an individual manager? And what happens
when the FMG changes its FMC or the FMC loses its star manager?
According to the FSA past performance of funds is
no guide to the future.
Markets
......are providers but deserve their own pages: Stock
Markets, Futures
Markets
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