The concept of caveat emptor has ceased to exist in the investment industry, says Paul Killik, founder of investment manager Killik & Co.
‘We have to be very, very careful with this compensation culture. The concept of caveat emptor has gone right out of the window,’ he said. ‘The pendulum has swung far too far in that direction.’
Killik, who has worked in stockbroking for nearly 40 years and has spent 25 years in private client investment management, argued that one of the main problems with the current regulatory system is unintended outcomes, since the process begins with rules.
Instead, regulators should look to expected outcomes and work backwards.
‘The retail distribution review is a classic example… They ended up with a complete dogs dinner,’ he said, adding that the new definitions of independent and restricted are ‘ridiculous’.
‘If only they turned around to us and said these are the outcomes we want to achieve and let us come up with something,’ he said. ‘They just have to engage with us, but they don’t. The FSA hardly engage with us at all.’
‘For the first nearly 20 years of my working life we were self-regulated. We did a far better job of self-regulation ourselves at a fraction of the cost of regulation today,’ he remarked.
While he conceded that a return to the days of self-regulation is unlikely – ‘to call it self-regulation is probably too politically sensitive,’ he said – Killik said he remains hopeful that in future the regulators will look to engage more closely with people in the industry.
Turning to the investment world, Killik takes issue with the use of local benchmarks, arguing the industry needs to move away from reliance on traditional indices which have over-concentrations in particular areas.
‘We have got to move away from local benchmarks. UK people are prone to measure their performance against the FTSE 100 which has 1% in technology, while the S&P has 18% in technology. At the end of the day it’s simply a guide for clients… [But] I think people have got to look more internationally.’
In future, Killik said he expects increasing concentration in regional markets, with New York for example becoming more entrenched as a specialist in technology and mining companies increasingly choosing to list in London.