CFA chairman admits fund fees are a challenge

Natalie WinterFrost may sound like a character from Game of Thrones, the popular television series, but in fact she is a qualified actuary, a client director at Aberdeen Asset Management and chairman of the board at the CFA Society of the UK, the investment industry's professional body.

In this capacity, she sets the agenda for 11,000 members, which she hopes to raise to 13,000 by the end of her two-year tenure. Of these, about 7,000 became members automatically after completing the CFA charter, a master's level qualification for investment professionals.

The central aim of CFA UK, which celebrates its 60th birthday this year, is "to build a better investment profession", says Ms WinterFrost. Her preferred means for doing this is education, training investment professionals to understand their priority is to put the end investor first, and helping them untangle the knotty ethical problems that can arise from this apparently simple principle.

The ethics of the industry is frequently questioned when it comes to fees, which Ms WinterFrost admits "is a challenge". "If you are putting the end investor first, you have to think about whether the structure and the quantum of fees are appropriate," she says.

Fees are a particularly sore point with respect to active management, where the evidence suggests they eat away any advantage gained through a manager's skill. But Ms WinterFrost refuses to engage in this debate, saying investor choice is paramount.

"I do not believe in limiting choice. The onus here is on the adviser [to make] sure people are not pushed into expensive or inappropriate choices."

As befits the chairman of an industry body, she believes wholeheartedly in the good intentions of her members. She sees the role of CFA UK's continuing professional development programme as one of education; teaching members how to recognise, avoid, mitigate or disclose ethical issues or conflicts of interest. By implication, once they know what to do, all CFA members will behave impeccably.

This will come in handy in the coming months and years, as the UK's new pensions freedom gives a generation of retirees full control over their pension pots, rather than forcing them to buy annuities. Although this has raised concerns that pensioners may put their money into inappropriate products, either paying too much or running the risk of running out of money, Ms WinterFrost is not concerned about the possibility of a mis-selling scandal.

"People are always extremely wary of this kind of thing," she says. "I am a bit cynical about mis-selling." This attitude is based on a suspicion that buyers of financial products with unwelcome outcomes automatically claim mis-selling rather than accepting their luck was out.

"All we can do is make sure advisers know what are appropriate products."

Ms WinterFrost is clear that CFA UK's members largely serve the affluent community, people in company pension schemes or with enough financial resources to use financial advisers.

"One of my predecessors wanted to help the less sophisticated end of the market, but it is really not feasible." These are the people for whom auto-enrolment into defined contributions was introduced recently. Nest, the scheme set up by the government, has focused on developing products for this less well-off end of the market, and is doing a good job according to Ms WinterFrost.

While the provision of continuing professional development is a high priority for CFA UK under Ms WinterFrost's leadership, it is not new. Her innovation is a plan to add value for members by "slicing and dicing the membership". An example of this would be the establishment of a women's network, with Virginie Maisonneuve, global head of equities at Pimco, the US bond house, as honorary chairman.

Although women are a particular interest group within the profession, as an under-represented segment of the population, Ms WinterFrost sees the establishment of this network as a template for engaging other interest groups based on expertise rater than identity.

Questioned about whether the CFA UK had a view on responsible investment, which usually focuses on environmental, social and governance issues, she cautiously admits that "corporate governance is within our remit".

This does not mean she will join the body of investment professionals and commentators calling for greater engagement with companies on governance issues. She is somewhat dismissive of the idea that the function of shareholder engagement is to ensure a company's governance structure is designed to facilitate the best outcome for shareholders. Instead, the party line at CFA UK is that engagement should be done by fund managers rather than corporate governance specialists and "the real value of engagement is where the investor can give guidance and support on strategy".

Her argument is that fund managers have a broader view of the industry, including sight of competitors, so can offer useful input to a board.

"It is easier to see an outcome from that than to try and bring everyone around to corporate engagement."

The corporate governance area that has attracted the most attention recently (and some of the hottest debate) is executive pay. Although Ms WinterFrost acknowledges the pressure to help the industry move away from variable remuneration structures, she believes "it is a tool that is too useful to get rid of". In other words, set up the right structures and the profit motive and market pressure will do the rest.

The only way she calls for interference in freedom of choice and allowing market outcomes is in wishing for on-the-job training, as provided by CFA UK, to be compulsory. Until this happens, she is happy to aim for "100 per cent voluntary participation".

Oh, and that romantic sounding name? She was a Ms Winter until she met a Mr Frost; they found themselves as personally compatible as their names and became the WinterFrost family.

. . .

Born1973

Total payThe position of CFA UK chairman is unpaid

Education1994 BSc (mathematics and economics), University of Bristol

2000 Fellow, Institute of Actuaries 2004 CFA charter

Career 1997-2000 Investment consultant, Aon Consulting

2000-07 Investment consultant, PwC

2009-10 Board member, City Women's Network

2007 to present Client director, Aberdeen Asset Management

2009 to present Board member, CFA UK (chairman since November 2014)

2012 to present Trustee, Population Matters

. . .

Founded 1955

Members More than 11,000

Affiliation Member of the CFA Institute (the global, not-for-profit association of investment professionals that awards the CFA and CIPM designations). CFA UK is the largest society outside North America

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