Okay, so you want to meet up with the CEO of a large company. You get your secretary to ring that chap at the investment bank to arrange a meeting. And somehow, in the midst of all this, the asset manager is billed around £10k, and the bill is then passed on to clients. The FSA doesn’t like it, and it is right to be so upset, but who are the real villains in this piece?
What is your hourly rate? How about $20,000? Not bad, but then drill down some more and see what you have to do for your money: Err, you have a couple of phone calls to make, and talk to, say, two secretaries. The first secretary says: ‘My boss needs to meet up with your client, the CEO of a large company’. The second secretary says: ‘Yes, Mr Investment Banker, my CEO boss is free three weeks tomorrow, at 11.30’. Now that wasn’t very difficult was it? But then again you are not making money for making phone calls; you are making money for knowing, and indeed representing, the right people, and for the right people trusting you.
So you raise an invoice at an hourly rate of $20,000 to the company the first secretary works for. Let’s call that company the asset manager. The asset manager bills its clients. No one in that immediate circle is harmed, and indeed the investment bank that facilitated the meeting is quite a bit better off. The asset manager is itself neither better nor worse off, but I dare say there is some kind of quid pro quo, and it does pretty well out of its relationship with the investment bank.
The two at the ends may not be quite so happy. The asset manager’s client pays the bill, and the CEO of the company may well be ignorant of the whole saga, unaware of the charges going back and forth.
The FSA is not very happy either. The ‘FT’ quoted Ed Harley, head of asset management supervision at the FSA, who said such arrangements were “hard to justify.” He said that upon investigating payments for cash: “When we challenged firms as to how they can justify they couldn’t give us a coherent answer that met those criteria.”
The truth is that this is not supposed to happen. It is against the rules. Asset managers can charge clients for their research, but not for arranging meetings. The FSA or, to be more precise, one of the bodies it will be split into post April 1 when the Bank of England takes over responsibility for financial regulation is on the case.
The final outcome may be big fines.
But are asset managers to blame, or should the new version of the FSA be chasing the investment bankers? It is tempting to say it is going after the wrong one.
Here are some observations. Observation number one: what about shareholder democracy? Corporates should be falling over themselves to be available to meet shareholders, or their representatives. Cash given out to arrange meetings is clearly a policy that works against such democracy – although of course bosses at corporations often pay out big sums to rub shoulders with politicians. You could say that is just as wrong.
Observation number two: what about transparency? The system of payments for meetings has really exposed how lacking in transparency this world is.
My final observation really builds on the first two. The world of asset managers and investments is too cosy, too close. Indeed, for that matter, the relationship between this world and bosses of large companies, especially banks, is too close. This is why we get the furore over executive pay. Is it because shareholders are typically represented by people who themselves are on massive salaries, agreeing to vote for massive remuneration policies?
Boris Johnson may think that the EU’s latest move on bankers’ bonuses is the worst piece of legislation since the time of the Roman Emperor Diocletian, but if you interpret the EU’s move as not being against bonuses, but rather it being in favour of shareholders having more of a say, I don’t think that is a bad thing
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees