May 15, 2016

A Mockery of Disclosure

Maybe it had something to do with being ‘Friday the 13th’.  Last Friday, for reasons that I cannot figure out, I was drawn into three separate, but equally vigorous conversations about how fund houses have chosen to interpret and act upon SEBI’s recent directive to disclose executive remuneration.  Of the three people who reached out to me, one is a respected investment advisor, another is a former client who occasionally consults with me, and the third is a friend who happens to be a DIY investor. 

All three of them were of the view that if a fund house had any reservations about making the said disclosure, it should have challenged SEBI.  Since no fund house had done so, there was no reason for any fund house to not disclose the information as directed.  Further, each of them felt that by adopting devious ways to mask the disclosure, most fund houses were making a mockery of it.  To paraphrase my former client: “A law is followed either in letter, or in spirit, ideally in both.  But in this instance, nearly the entire fund industry has chosen to ignore the spirit and to come up with their own perverse, pathetic and distorted interpretations of the letter.” 

Leave aside some of the more diabolical measures (asking for an OTP, saying that the HR department will revert etc.)  The unanimous view was that asking for any proof of being an existing investor was in itself an extremely questionable approach.  After all, wasn’t a prospective investor equally entitled to the same information?  My friend went on to say that, if necessary, he would become an investor in every such fund house by investing the minimum amount in each of their liquid funds.  The purpose, he said, was not because he craved this information, but “to teach those arrogant, overpaid f**kers a lesson” by rightfully making that information public.  If you can take my word for it, my friend is generally a mild-mannered individual who, only when provoked, uses such colourful language.  I say this to suggest the possibility of other investors reacting similarly to this issue.

The advisor whom I spoke with, pointed out one other thing.  According to him, some fund houses seemed to have gone to great lengths to figure out the most obscure places on their websites to disclose this information.  A quick look at some fund house websites confirmed the truth in what he was saying.  In fact, a search for ‘remuneration’ using the site search option on the websites of 4 of the top 5 fund houses (by AUM) did not yield the desired result.

This is not the first time that fund houses have made a mockery of disclosures.  If one looks back, one may remember television commercials where the risk factors were read out at breakneck speed.  If one goes further back, one would find instances of font sizes on statutory documents being so small that those documents were virtually unreadable.  I could go on and on.  Not all instances have been related to statutory disclosures.  About a year or so ago, I alluded to the bizarre manner in which ICICI Prudential discloses fund expense ratios in its monthly fact sheets, a practice that continues till date.  Take a look at this screenshot from their latest fact sheet (click on it to see it in its original size).

I-Pru Expense Ratios April 2016


In my early days in this industry, I would have probably wondered how was it that no one in the fund house noticed this.  But experience has taught me that there is a more straightforward explanation: most fund houses do not care enough about their investors, and some do not care at all about their investors.  Well, history offers enough examples of firms that paid a stiff price for disrespecting their customers.  Only time will tell who will be next.  My mild-mannered friend, of course, has his own take on it: “They’re gonna burn in hell!”

Full disclosure: I was employed by the fund industry for over twenty years.  For a certain part of that tenure, I believe I would have qualified as an “arrogant, overpaid f**ker” though I was never overpaid enough to merit a mention in any such disclosure, had it been in force at that time.

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