Diligence and thoroughness in investment decisions

RETAIL investors pay fees to investment professionals to manage funds. These recurring fees for actively managing funds typically range between 1 per cent and 2 per cent per annum of the funds’ net asset value. What do retail investors expect in return for paying management fees?

They would expect the fund to be managed professionally. Retail investors expect fund managers to utilise their investment expertise and knowledge in allocating funds, selecting securities, monitoring performance and managing the fund through a market downturn, among other pertinent duties. This implies, in laypersons’ terms, that fund managers need to put in effort, do their homework, and have a reasonable basis for the decisions they take.

So, are retail investors getting what they paid for? Many professional bodies require their members to exercise diligence and thoroughness in discharging their duties. This includes CFA Institute, which is a global association for investment professionals. One of its standards is the Diligence and Reasonable Basis Standard.