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FTSE licence hike fury: what are the alternatives?
Markets
by James Phillipps on Apr 30, 2012 at 11:33
A number of wealth managers have been left seething after being asked by FTSE Group to pay substantial amounts to quote any of its indices on client literature. But are there other viable benchmarks they can use to get round this?
Wealth Manager revealed last week that several small and mid-sized private client firms had been asked to pay as much as £40,000 for licences, while online readers said they had been asked to pay as much as £50,000. Worse still, the indices include not just the FTSE 100, but also the industry standard FTSE Apcims range.
Matthew Hunt, principal at Prospect Wealth Management, said his firm uses the FTSE 100 as a benchmark and it is both important, and clearly understood by clients. But if charges were to rise he would seriously consider alternatives.
‘We pay for live feeds from Reuters and Bloomberg, so presumably some of that money goes through to FTSE,’ he said. ‘We are not going to pay for it twice and my feeling is that they will damage their business because people will walk away from them.’
He said the FTSE indices are already losing some of their value after access to their composition and history through the likes of Reuters and Bloomberg was reduced. Reuters responded by replicating the indices and providing full access to all relevant information on its mirror image versions, and Hunt would switch to these if faced with an ‘extortionate’ bill.
Others have already moved away from FTSE indices, such as the FTSE Apcims suite. Caroline Shaw, a fund manager at Courtiers Investment Services, said the group dropped them last January over concerns about their composition and relevance. Instead, the firm has adopted a straightforward MSCI World/Markit iBoxx sterling corporate bond index composite.
‘Nothing is perfect, but we were concerned about their composition, which always seemed behind the curve,’ she said. ‘They only added hedge funds and property in 2008 just before they blew up and only have gilts and not corporates in their bond allocation, which is not reflective of how portfolios are managed.’
Richard Harper, head of asset management at GHC Capital Markets, also prefers a composite approach, adding that existing indices are ‘not relevant if you are running holding equities, bonds, gilts and commodities’. Both he and Shaw believe clients are less concerned about fixed benchmarks and more about whether they are on track to meet their long-term objectives.
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by Danielle Levy on Jun 18, 2013 at 07:38
2 comments so far. Why not have your say?
Victorian Assets
Apr 30, 2012 at 16:28
We were a boutique investment management business. In the early days (2009) we decided the cost of receiving the feed was not justifiable in light of the difficult times in which we started. We cancelled the contract a day late and they enforced the contract of £12k a year when that figure represented 24 months of income (not a typo!). We wrote to the MD at the time to beg him to let us off in light of everything. He said no with a level of arrogance that can only be found amongst the worst type of rentiers in our industry, of which FTSE surely must be the worst of the worst. I hope some of the larger wealth managers out there grow a pair, and cancel their contracts today!!
report thisMr Blue
Apr 30, 2012 at 17:00
Realistically I would suggest people use a composite based off your secular views. If your asset allocation does not match APCIMS there's no point running money to it - you are taking a completely different set of risks. So as and when your performance starts to diverge, for better or worse - people ask questions. And your response will be, well we've never run money to it anyway!
Another example is the fact that I doubt very much that the FTSE APCIMS Income index would actually meet the average clients income requirements with the amount of equities and gilts within it - sub 3% doesn't cut it for most people. So why compare yourself to it?
At a minimum create a benchmark for internal use which accurately reflects how you do invest, so that it gives you some framework and a good idea of attribution, the risks you are taking and success/failure.
A difficulty with the composite approach however, is that if one applies a new (but retrospective) benchmark, based off an asset allocation of what your secular views are now - it radically alters past performance. If you have not always had the same views or invested in the same manner, this creates a potential problem of presentation which may or may not flatter your own past performance. Again, this needs to be understood by clients & advisers.
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