Let’s talk about fiduciary duty

Fiduciary Duty has always been an elusive term. In fact, there is no one global definition, because the meaning and obligations associated with it differ between countries and their respective regulators.

Phrases like ‘duty of care’, ‘client’s best interests’, ‘good business practice’ and ‘ESG’ have been fused into an amorphous term that asset/wealth managers continually use to describe an overarching duty to do right by their clients. The question is, what does do ‘right’ mean in this current world of low returns and higher volatility? The significance of the question is amplified as active managers are required to do more and more ‘right’ by their clients, whilst facing fierce competition from passive funds and continuous downward pressure on their fees, which results in a real hit on profitability.

As we see it, an asset/wealth managers’ duty is primarily to add value financially at a reasonable price, on a risk-adjusted basis, whilst aligning decisions with the interests of their customers.

In the last decade, asset/wealth managers faced positive conditions of wealth creation as the QE paradigm contributed to rising asset prices and lower volatility. But that era is now coming to an end, as higher volatility and lower returns make beating the benchmark increasingly difficult. In the face of such challenges, many managers will no doubt be tempted to increase risk in order to generate those desired returns.

But before you go down that route, we would argue that it is your fiduciary duty to first take full advantage of the rights that are awarded to your customers through their various investments. To be precise, we mean the basic right to lend your customers’ stocks, bonds and ETFs and generate additional returns on them.

For many decades, the opaqueness and complexity of securities lending acted as a deterrent to many small/medium managers, because they couldn’t afford the operational overhead and were not able to properly weigh the risk/reward of this practice. This left a plethora of opportunities for the biggest asset managers.

Today, the balance of power has shifted. Now, with Sharegain, you can capture that additional alpha return whilst retaining a high level of control, transparency and security that will also enable you to best serve your clients in these challenging times. The biggest asset managers have been doing it for decades, and now you can too!

Fiduciary duty is an ever-evolving concept. As we enter 2019, the value of an additional low-risk return that may enable you to beat the benchmark whilst also delivering differentiating value to your customers, should not be overlooked.

Naturally, like any other investment activity, the practice of securities lending has its risks, yet they can be mitigated through our solution. For more information click here.