Until joining the Association of Private Client Investment Managers and Stockbrokers in 2004, Sears, who had only previously worked in finance on regulatory and legal matters, did not know much about trade organisations, let alone want to run one.
But after a long stint at the IA – he will miss his ninth anniversary by a matter of weeks – and with an in-depth knowledge of all the different departments within the association as the IA’s director of risk and compliance, Sears was the obvious choice to steady the ship following the unceremonious departure of former chief executive Daniel Godfrey in October 2015.
“Externally there was a lot of comment about what was happening at the IA,” said Sears in his first – and last – interview in the role. “Where were we going? Was there a crisis?”
There was also concern internally, according to Sears, after Godfrey was pushed out of the IA after giving his blessing to initiatives that were unpopular with many of its members. While his actions were praised by governance hawks, two of the IA’s largest members, Schroders and M&G, said they would not renew their membership at the end of 2015.
“There were 60 people whose jobs were depending on it,” said Sears, sat in a black velvet armchair chosen by his predecessor.
“Most people were just coming in and trying to do a decent job, so it was very important to reassure the staff as to where we were going,” he said. “And to remind everybody that while the change of a CEO is big news externally – and it is important – the day job continues.”
High-fee report hysteria
To his credit, Sears’ tenure in the role is likely to be remembered for his success in calming the situation and helping to win back institutions that had become sceptical of association’s direction – Schroders and M&G both remain members.
But an otherwise serene period was upset by the perennial thorny issue of fund management fees in a report by the IA in early August, which found no evidence that fund managers failed to disclose fees to their end clients and that claims of high portfolio turnover costs were unfounded.
A few disputed the evidence and several hackles were raised by the accompanying statement from the IA, which highlighted comments about “high-fee hysteria” by some in the sector and said hidden costs amounted to the “Loch Ness Monster of investments”. Objectors were unimpressed and one called the tone of the statement “needlessly provocative” and “churlish”.
Sears is quick to defend the IA’s actions. “I hope people know that it has never been my intention, whether from inside this organisation or outside, to work in a way that appears or intended to insult,” he said. I have taken note of the comments. We don’t miss what the reactions are.”
Industry sources suggested that the report may not have been intended to target the high-fee critics at all, but to act as a warning shot to the Financial Conduct Authority, which is set to publish a view on the sector in November.
Not so, said Sears. “It was important that we did it as part of our work on the market study, but the timing wasn’t trying to jump ahead of it.”
Nevertheless, the FCA’s review, set to be published in November, is clearly playing on the minds of those in the industry.
Sears said he had no insight on what the review would say, but suspected it would “look into fund structures and how costs are managed to ensure incentives are right to minimise them for clients” and that the FCA would “think long and hard” about how consumers made decisions.
“That will be incredibly interesting,” he said. “We have never carried out detailed consumer research into their behaviour and how they make decisions.”
As the review is not looking into retail fund platforms and distributors, Sears believes some of the data and information gathered will feed into the FCA report into the success of the Retail Distribution Review scheduled for 2017.
“I don’t think the review will become something that by December will be finished,” he said. “It will also act as a deeply evidence and data-based context for [new FCA CEO] Andrew Bailey’s agenda for the next four to five years.” It will sit alongside the financial stability agenda, which will ask whether fund managers are systemically important, said Sears.
“If we encourage more market-based finance, how do we control it and understand it as regulators and governments? I think they lost track of the banks 10 years ago,” he said.
The regulator’s stance is expected to set the tone for a new era for the industry, which has been changing rapidly since the financial crisis.
“[The crisis] reset the contract we had with society,” said Sears. “Whereas before, the city was full of people who thought they had a right to be here, the burden of proof has changed and we have to show what we contribute.”
This, coupled with the failure of bank balance sheets, has given the funds sector the “space and confidence” to send a clear message about what it does to the wider industry and its customers, Sears explained.
The creation of large independent asset managers – rather than an industry filled by bank-owned firms – has also boosted its profile, he said. “If it is not the age of asset managers, it is one where asset managers are being asked to fill some of the financing gaps that the banks can’t fill,” he said.
Correspondingly, Sears said the IA has also modernised during his nine years there. “There is a much more confident narrative about the range of services asset managers offer. We don’t just see ourselves as a UK fund industry but rather a global asset management industry.”
The organisation – whose members now manage more than £5.5 trillion – now covers parts of the buyside, such as brokers and clearing, that had once appeared to be “adjuncts” rather than integral parts, said Sears. This has helped it reach out and interact with partners within the city.
“There is a greater level of conversation and balance between the two sides of the street now,” said Sears, referring to investment banks. “We do a lot with Association for Financial Markets in Europe and it has worked well. If the asset managers don’t try and make sure markets work, who will?”
According to Sears, the need for asset managers is unlikely to disappear. “The demographics and balance sheets of major economies mean that the political direction of people taking responsibility for their own retirement provision won’t change,” he said. “Unless everyone relies on bank or insurer balance sheets to meet promises, there will be asset management of some form. Collective investment brings scale and cost saving as well as allowing professional decision-making.”
But the landscape will be very different.
“The distinction between institutional and retail will disappear in five to six years’ time and we might have a richer set of labels for fund managers as they develop into a set of specialists,” said Sears. “But if we have significant flat economies, whatever type you are, if there is no growth, there is no growth. The narrative will change and that will be a good thing.”
Disruption would also come from technology, he said. “The challenge will be about who has the relationship with the client,” said Sears, and asset managers should have a strategy to make sure they were not left behind in this digital advance. “Asset manages usually communicate with clients through intermediaries, so the ability to cut and deliver data and engage with the disruptive apps will be important.”
Like the industry it represents, the association is preparing for its own new era, with Chris Cummings starting as the chief executive in September, but with Sears no longer on board. So what is next for him? He doesn’t know.
“People presume I will do something about Mifid at an asset manager,” he said. “I have been involved in financial regulation since 1988. Now is an exciting time for firms. Brexit is a game changer and can help us to look for talent in the UK outside of the usual hunting ground.”
It will take a month or two, but he estimated there was an 85% chance he would be working in the asset management industry.
For someone who never wanted to lead the trade body but ended up doing so, the tables have turned for Sears: he ended up wanting to continue in the role but did not get the job. “I went for the CEO job and didn’t get it and it has been my choice to go.”
But he said the experience was bittersweet: “It’s nice to leave this place not on the basis of having had enough.”