Friday, 27 July 2012

Kay Report – precisely in line with Brewin Dolphin philosophy and practice


Long-termism has been Brewin Dolphin’s watchword throughout our 250 year history and we share absolutely the core findings of the 'Kay' report, announced this week by Professor John Kay in his review of equity markets:  
  • the realignment of incentives with long termism across the investment chain; 
  • the reduction in the chain of intermediaries involved in asset management; and 
  • to enable shareholders to engage more effectively with the companies they invest in – to align their objectives. 
This is the basis of the Brewin Dolphin model: our clients invest mostly directly in listed companies, through a custody service operated by ourselves and which enables clients to vote at their companies' AGMs.

Private investors are not short term speculators in the main – average turnover within our clients’ portfolios is less than 20% per annum and shares are held for on average five years. According to a London Stock Exchange survey in 2011, almost 80 % of private investors believe shares represent a good long-term investment and only 26 % of those questioned sold shares in the preceding 12 months. We believe passionately in the merits of long equity investment for private savings and also that equity is often a more efficient form of capital for business development than debt. 

Kay also advocates a sharp reduction in the number of intermediaries between the saver and the companies they ultimately own; the chain of go-betweens in the investment process has become far too complex and costly. The report suggests we should return to simpler times when fewer organisations – who all have to be paid fees – are involved in the process. 

For listed companies, we welcome the Kay recommendation that the requirement for quarterly reporting should be stopped, to reduce costs and short-term earnings expectations. But, as we wrote in our submission to Kay, there are an increasing number of other restrictions that prevent private investors fully enjoying the benefits of share ownership. The prospectus rules restrict the primary markets almost exclusively to institutions – with virtually no IPOs accessible to private investors these days. Similarly, private investors find it nigh impossible to participate in Rights Issues and companies are charged ever increasing fees for raising funds in the market - which should be an easier and cheaper route for them - than just more debt. 

Kay is also concerned that private investors are increasingly restricted from acting as corporate governors over the management of quoted companies. While Brewin Dolphin has long argued against legislation in the area of shareholder democracy, which would add yet more to the cost of services provided for all investors, we do provide free facilities for all our clients to participate in the AGMs of their companies if they choose to. We believe it should be best practice for the majority of providers of investment services and even products, to provide such simple facilities for investors to express their views about remuneration and other matters of corporate governance. This would help make boards more accountable to their shareholder base and hopefully more in tune with public opinion. Our shareholder voting services are available for all our clients in our nominees, they are on line and are free and can be found at this link https://apps.brewin.co.uk/vys/.

For the good of the UK economy and all who invest in it, the vital issue that Kay seeks to address is the restoration of trust and confidence in financial services and for market participants to simply behave in the way that they should. The Report suggests that there is already quite enough regulation - it is just that people need to adhere to the fiduciary standards that already exist and we could not agree more heartily.

Charlotte Black
Director of PR & Corporate Affairs

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