Trust me, I manage money

No-one doubts that trust, ethics and integrity are central to pension and investment management.

Public opinion surveys reveal a widespread mistrust of financial services in general. But does the institutional investment management community have a problem, even at the level of perception, with issues of overall integrity?

The topic of trust in investment management has been discussed at a number of high-level industry conferences recently. Few commentators see any catastrophic breakdown in trust between investment managers and the pension fund community, in public at least, but they are largely divided into two groups.

One sees only minor disappointment at investment outcomes. Essentially investment managers are service providers bound only to satisfy their obligations by continuing to produce good returns. Managers and investors will also serve clients and wider society well by continuing to invest in the real economy.

A second group also sees no catastrophic loss of trust but is more conscious of a variety of issues in areas including accountability and the incorporation of the client’s interest within the culture of the firm.

Accountability and organisational complexity are intertwined. While asset managers need to innovate to serve the needs of a wide client group with diverse needs, this can create a culture of myopia, whereby the firm is more focused on the moving parts of a complex business than the wider outcomes and interests of clients.

Accountability also becomes paramount when looking at remuneration. Investment managers want to attract the best investment talent and pay them commensurately. But this can become an inward-facing conversation that often excludes the clients’ interest because there is no incentive for the individual manager to accept responsibility when the client’s returns suffer.

Of course, particularly in the area of retail investment management, issues such as fees and product proliferation, including the bewildering range of largely redundant fund share classes, are an important issue.

The CFA Institute is concerned with issues of professional integrity and has much to add to the debate. But professional codes and norms mean little – even if individuals have the highest levels of integrity – if these codes are not embedded within the relevant organisations.

Some managers have created the role of chief client officer in an attempt to embed client interests at the heart of their firm. This is laudable and there is more best practice to share.

But more needs to be done at the highest level. Perhaps boards should heed Philippa Foster Back, director of the London-based Institute for Business Ethics, who said recently that the issue could be boiled down to “doing the right thing when no-one is looking”.


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