“Investment management industry leaders must develop professionalism at every level of their firms”
How can CFA charterholders better deliver the mission to lead and build the investment profession for the ultimate benefit of society? Over the last five years there has been much discussion concerning trust as an essential ingredient for our profession to succeed. We must now add to this conversation by focusing on two issues of equally great importance: first, the technical competence of investment management professionals who hold the CFA designation and secondly, better proving to society our competence and trustworthiness.
The profession has been through a lot over the past few years and the world around us is changing fast. The investment management business will have to adapt to keep up with the times.
First, the good news. By 2020, it is predicted that an additional one billion middle-class consumers will emerge globally. This represents the largest single decade increase in potential clients in history. This increase will be primarily the result of growth in South America, Asia, Africa, and the Middle East. The global middle class is also projected to grow by 180% by 2040 with Asia replacing Europe as home to the highest population of this demographic.
The investor client base is therefore ready to explode. Global investable assets for the asset management industry are expected to increase to more than $100trn (€89trn) by 2020 with an estimated compound growth rate of over 6% a year – much higher than global GDP growth. Citizens and businesses worldwide will need to draw on the expertise of investment professionals as their assets grow.
However, access to this wealth will not be straightforward for our profession. The digital revolution is also advancing. The birth of robo advisers, the rise of exchange-traded funds, and the success of digital disrupters such as Alibaba and Tencent in China, underscore the powerful appeal of disintermediation. Nearly two thirds of high-net-worth individuals expect to manage most or all of their wealth digitally in the next five years and would consider leaving their current investment firm if an integrated channel experience is not provided to them.
In addition, many of our potential clients just do not see the value we add for the fees that we charge. Nor do they perceive that our activities help build, long term, the type of society that they want to live in. This is especially true for millennials. We have to work harder to convince clients that investment professionals work to meet both clients’ investment objectives and create social impact. Our contribution to helping build a healthy, sustainable society is essential because we connect those who need capital with those who are willing to provide it. Does society value this work enough? I don’t think so. Have we done enough to demonstrate our value? I am not sure that we have. We have to deliver the clear message to investors and policymakers that we are a force for good, one that places the interests of investors above all other considerations. This is at the heart of what it means to be a CFA charterholder.
“We are at a crossroads. We have to decide which is more important – client interest or self-interest. If we choose the former, we could be on the cusp of a bright future where investor trust is restored with all the resulting benefits that this will bring”
Our ability as a profession to add value is also being pressured by regulators as they turn their attention from banking to the investment management industry. Regulators are scrutinising culture, interactions with customers, and effectiveness in implementing regulatory changes. This focus will be relentless.
Though we have a solid foundation from which to address the future, we have considerable work to do to advance the investment profession. We are at a crossroads. We have to decide which is more important – client interest or self-interest. If we choose the former, we could be on the cusp of a bright future where investor trust is restored with all the resulting benefits that this will bring. If we choose the latter, however, the regulatory leash around the industry’s neck will tighten ever further and our clients will vote with their feet.
Two of our industry’s besetting sins have been: an excessive focus on quarter-over-quarter investment performance at the expense of concentration on achieving investor outcomes (usually of long duration); and a failure to invest in the adequate training of our human capital. This is the short-termism curse of our industry and we need to break this pattern if we are to survive. Long-term fiduciaries of capital (such as pension funds) can help us to achieve these twin goals.
So, yes, the industry should address these issues but what can pension fund trustees do to speed up this process? Pension funds are enormous asset owners and therefore a critical part of the fiduciary capital debate. They stand as proxy for the investors they represent. These investors are not solely concerned with investment return. They worry too about the communities in which they live and the impact on those communities of the businesses that operate within them. If pension funds limit themselves to financial returns only as a measure of the adequate discharge of their fiduciary duties they sell their clients short.
So how do pension funds fulfil their duty to society at large? By making sure that managers are well trained, ethical and operate under investment mandates that are purposeful and serve society’s broader, long-term needs.
What should investment managers be doing as their part of this bargain? We have to better demonstrate what it means to be a profession by promoting the highest standards of education, competence, and professional conduct. When we visit the doctor we assume they are qualified and competent to diagnose what ails us. Investment managers should pursue the best qualifications if society is to trust our competence to serve their investing needs. We all have a personal responsibility to spread the word about the need for well-trained people throughout the investment management value chain.
Investment management industry leaders must develop professionalism at every level of their firm. Currently, CFA charterholders are employed at more than 31,000 companies worldwide – these firms ought to have an overwhelming vested interest in adopting the highest standards of professionalism at every level within their organisations if they don’t already. A sustainable, successful business is built on serving client needs first.
We need to invest in our people and maintain that investment post qualification to enable that human capital, throughout its career, to maintain the highest possible standards of education and ethical behaviour. By putting the interests of our clients first we can ensure the continued health of our valuable profession.