Complexity and Proportionality 

A professional colleague, whose opinion I would respect and depend upon unquestionably, returned recently from a high-level roundtable with a mainstream provider of EIS and BPR products.  There were, in the room, senior managers from the product-provider as well as leading IFAs from across the UK.  Apparently, the event was a Revelation.

At the provider level, my colleague learned a profound lesson about culture.  The business model is predicated almost entirely upon a continuation of both demand and successful outcomes, into the foreseeable future.  Whereas we, at ValidPath, regularly ask ourselves what-if questions, presupposing some kind of negative phenomenon, this kind of approach simply does not appear to form part of their outlook.  It's a model based upon uninterrupted growth and demand, with a trajectory towards other markets which embody vastly degraded transparency and accounting rigour.  And it's an approach which you can bet will put corporate interests way ahead of those of either client or intermediary.

At the Adviser level, my colleague discovered a degree of stultifying complacency which is almost unworldly.  Representatives of these intermediaries expressed themselves as entirely satisfied with the kinds of disclosure located in product literature, and felt no need to look any closer.  Given that certain categories of product are currently masquerading under 'low risk' descriptions, when that could not possibly ever be the case, this frames an attitude towards due diligence which makes it more like whistling in the dark.  Or crossing your fingers behind your back, as the client signs on the dotted line.

Well, we've seen this kind of thing before, on plenty of occasions.  The cataclysmic collapse of the Arch Cru funds may well have been a direct product of knee-jerk regulatory intervention, but anyone who knew their onions could see that attaching the designation 'cautious' to something which had substantial exposure to private equity required a kind of suspension of one's critical faculties.  And there's been a lot of this doing the rounds.  Advisers who sold the Stirling Mortimer Cape Verde funds, or the Quadris Forestry funds had clearly never passed GCSE English Language, judging by the kinds of risk descriptions they tended to employ.  When they employed any at all.

My colleague reflected, after listening to such articulations of a kind of real-world-avoidance pathology, that in his experience one of the distinguishing characteristics of ValidPath's approach is to take the detail of risk (as well as the underlying risks) seriously.  Simply put, over the last decade or so, we have sought to embody a culture which establishes principles for responsible operation, which are grounded in a deep familiarity with the technical detail of the products that Advisers deal with.  That's why we founded ValidPathDD.

And that's why we have recently updated all of our guidance in relation to 'complex investments'.


Kevin Moss, 03/04/2019