Show Hide image

The Business Interview: Robert Higginbotham, Fidelity International

"The confidence of savers and investors has been badly shaken by the events of the past two years."

1. You're a very successful business man. What has been your biggest personal challenge so far, or your proudest achievement?
I think the biggest challenge for any leader or manager in financial services is to ensure that they are playing their part in improving the financial quality of life of all our customers and not putting short-to-medium term commercial pressures unduly ahead of this priority. I believe that the current industry set-up has a long way to go before we can say that we are doing this in a way that puts our customers at the heart of our industry.

My biggest personal challenge is to ensure that I personally, and Fidelity International corporately, punch above our collective weight in working towards this goal. My proudest achievement is to be working in a leadership role in a company that shares this vision.

2. What motivates your interest in financial services?
First and foremost I believe that, over the next ten years, Fidelity can make a difference to the quality of the financial services industry in Europe. I think the industry can create a legacy during the second decade of the 21st century that will last for many years if we coalesce around the goals of improving transparency, simplicity, choice and value. These are goals that Fidelity has always had and, through effective engagement, I believe we can work with the rest of the industry towards these ends.

3. What makes Fidelity distinct as a business?
Being a private firm, our corporate investment horizon is longer than that of many of our publicly listed competitors and more aligned with our clients' investment horizons. We have the ambition to build a business that will serve the breadth of our customers' savings and investment needs, both directly and through other distribution channels, as opposed to positioning ourselves as a narrow asset management manufacturing business focused solely on wholesale and institutional distribution.

We also have the scale that many of our privately held competitors do not have. Our distribution network spans right across Europe while our investment research and portfolio management resources cover the whole world. None of those can be easily replicated.

When you add in the commitment and drive of our people and Fidelity's market-leading brand position, we have a very strong competitive advantage. I don't see anybody who has the potential that we have over the next twenty years.

4. What is the biggest challenge facing Fidelity's European business today?
Europeans are not saving enough. Savings rates were already in decline before the financial crisis but extreme volatility has caused even more investors to question whether markets can really help them to meet their financial aspirations. First they were burned by a savage bear market and then came a sharp rally that many will have missed.

Our challenge is to restore our customer's faith in the risk assets that history tells us are most likely to help them meet their goals. We need to play to our strengths and make the most of our distribution networks and the brand to continuously emphasise the quality of our investment management and reflect this in our products. We have already streamlined our product range and, looking ahead, we must ensure that we only develop the right products for our customers.

5. Aside from the financial crisis, what is the biggest challenge facing the financial services industry today?
The confidence of savers and investors has been badly shaken by the events of the past two years and I think we must show that we are putting their interests first. Our industry must develop to deliver the simplicity, transparency and real choice that our customers deserve. It needs to be obvious from the outset whether a client is dealing with an adviser or a salesman and, from that, to clearly distinguish between the cost of the product itself and the cost of the associated advice being given. Only then can we expect our customers to make an informed judgement about value for money.

Consumers also have a right to expect their financial adviser to demonstrate competence in the same way as their lawyer or accountant -- through a practicing certificate. A leading German consumer safety group carried out some mystery shopping and concluded that most of the advisers at 21 banks tested gave poor advice. Similarly, the French Securities Ombudsman has said she believes the majority of bank advisers are more concerned by their own interests than those of their clients. Such situations cannot continue if we are to win back the trust of our customers.

In the UK, the Retail Distribution Review (RDR) is a step in the right direction. So too is this year's review of the Markets in Financial Instruments Directive (MiFID) and related work on disclosure requirements for packaged retail investment products across the EU. The RDR and MiFID set out to legislate for the protection of investor's rights and to improve transparency amongst product providers. However, it is disappointing that UCITS IV (the latest incarnation of legislation to harmonise the distribution of investment products across Europe), in its Key Information Document, does not mandate the separation of the cost of advice and the cost of the product.

After the rapid market rebound from the lows of last March, rebuilding investors' confidence in markets may be achievable in the short term. Restoring faith in the financial services industry itself is likely to be a longer-term project.

6. What impact has the recession had on Fidelity? How well placed is the company to weather the downturn, and why?
We went into the downturn in pretty good shape compared to some other fund management groups. There was a flight to quality and we were beneficiaries of that and we have third-party flows that many of our competitors do not. We also took steps early on to get costs under control and have held on to these improvements as markets subsequently recovered from their lows. We have resisted the urge to loosen the purse strings too much, too soon. There is no doubt that things are getting better and, as we become more confident that the recovery will continue, we will carefully increase investment levels again.

However, longer term, I want to see us diversify away from equity funds and grow our business. I am also keen to stabilise the revenue base of the business and insulate us more from the market cycle. I want us to be in better shape for a future downturn.

7. What next for Fidelity?
I want us to stay close to clients at all times, worry about the competition constantly and ensure we're always making as great a return as possible for our investors. In short, I want Fidelity to become the best provider of medium-to-long-term savings and investments in Europe.

As part of that aspiration, I want to regain the top spot in our largest market, the UK, and to enter the top five in Germany. Ultimately, I'd like to be number one in Germany too. I'd also like us to be the number one platform provider in both Germany and the UK. We've already made a significant commitment to that with our first ever acquisition, that of Frankfurter Fondsbank last year. This year is about integrating that purchase with our existing German business and improving the competitiveness of our UK platform business.

8. Given Europe's shifting demographics, are you expecting years of continued growth in European markets, or are there greater opportunities elsewhere?
I have already said that the UK and Germany are important to us but I believe that we can also grow our other European market positions significantly over the next few years. With the business model we already have in place, I think we can extract more growth from each market.

The very fact that Europe has an ageing population, and there is a tendency not to save enough, makes the retirement market an obvious source of growth. We are fortunate to be involved in a business where demand for our products is certain to increase over time. Existing tax incentives are not always successful in persuading the young and the less well-off to save and we would like to see measures that explicitly encourage new saving, rather than simply shifting existing savings around to gain a tax advantage.

Fidelity has a great record for investment excellence and product innovation. Put those two strengths together and we are in a very strong position to help meet the saving needs of Europe's ageing population.