Remember Chartwell Enterprises? Timbercorp? Great Southern?
OK, none of them were quite AMP (although the latter two were listed on the ASX). Nevertheless, the experience of fund managers such as these, all within the last ten years, makes real the concept of fund manager risk. Advisers need to be aware of this risk, and it can pay to suggest that clients manage this risk as much as they can by diversifying wherever prudence suggests and efficiency allows.
Of course, it not just in the event of an absolute collapse that a person may lose out from concentrating their money too heavily with one fund manager. As Warren Buffett points out, from time to time even the most reputable organisation might find itself being run by someone other than a smart person. Actually, what Buffett said was this:
You should invest in a business that even a fool can run, because someday a fool will.
Well, the same logic should really be extended to fund managers as well. Occasionally, now that we have entered a certain stage of our own life, we come across people with whom we went to Uni and who are now in positions of some influence within the funds management industry. It is not always a reassuring fact.
Where clients only have small amounts to invest, diversifying between fund managers might be less achievable. This is, of course, a pity because these clients typically can afford to lose less than can larger investors. But there does come a point where all advisers need to look at whether they should be suggesting that clients spread their financial assets across more than one fund manager to obviate manager risk.
In much the same way as the situation with life insurance, diversifying fund managers is a ‘belt-on-with-your-braces’ approach that we hope will never be of any benefit to your client. But it is an approach that is very consistent with Dover’s main philosophy, which is that all clients and their investments are presumed conservative until proven otherwise.