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How We Can Do Good by Doing Well

June 1, 2017

When most of us decided to pursue a career in investment management, there was a sense of pride that came with knowing we’d help people realize their financial goals and build a better future for their families. Hopefully most of us still feel that way.

In response to a bevy of negative headlines about investment managers, some might say our industry has made some withdrawals from the reputation bank. But let’s not forget our industry still employs more than two million people and is expected to manage approximately $100 trillion in assets for clients and investors by the year 2020. In short, without our industry people would stuff their savings under the mattress rather than prudently invest for retirement.

But of course there’s a rub: Yes, society depends on our industry to power innovation and growth, and retire with dignity. But we continue to face an uphill battle in proving our value. Today more than ever, it’s crucial for leaders in our industry to demonstrate a renewed commitment to ethical business practices, and master new skill sets to ensure we realize our mission.

A roadmap to success

While investment professionals are generally aware of the importance of adapting, individual efforts won’t bring about the changes we need for a brighter future.

Transformation must start at the top and change must be a team sport. CFA Institute’s latest research report, The Future State of the Investment Profession, identified several areas senior leaders should consider to create value and foster success as the industry navigates the challenges in today’s environment.

Professional transformation: First, it’s essential to change the perception of investment management as an industry obsessed with revenue maximization above all else.

If we want investment management to win back hearts and minds in the public square and ultimately be viewed as a profession, let’s show the same type of loyalty and care to clients as would a doctor or a lawyer.

We also know professionalism can be demonstrated through technical knowledge. And credibility can be evidenced by a strong track record, experience and professional designations such as the CFA charter. But ethical values are arguably even more important. Empathy, loyalty and putting client interests first are the key pillars of professionalism, particularly in the minds of today’s investors.

Fiduciary implementation: The second – and closely related – focus area relates to fiduciary implementation. The issue is dominating industry conversations with the delayed Department of Labor fiduciary rule to be implemented in June, albeit with a few changes.

Regardless of when the rule takes effect and in what form, we all should be taking concrete steps to create a process and dialogue that facilitates gathering and evaluating client information and goals to make prudent recommendations. The industry must master fiduciary responsibility in a way that permeates the organization and therefore endures even in the face of inherent conflicts.

Moving to mitigate conflicts of interest voluntarily and making fees, commissions and expenses transparent will go a long way in dispelling public skepticism toward the industry.

New skills: Technological disruption is transforming the way we do business and how clients access financial advice. So our industry needs to attract a new generation of talent that is agile and able to adapt to an environment that changes at warp speed. The successful investment professionals of the future will combine technical competency with strategic and critical thinking skills.

The importance of softer skills like relationship building and the ability to listen also cannot be overstated.

Don’t worry: The robots aren’t taking over yet and an algorithm can never replace intrinsically human skills. But don’t rest on your laurels either. Clients have high expectations and they need a holistic approach that includes both human judgment and robust quantitative models.

Stronger standards to restore industry trust: More than ever we need a business model that raises the bar for the industry. Maximizing value for the client is the foundation of this model, and it will facilitate a culture that encourages and rewards the highest ethical standards.

To achieve this goal, the client-first mentality must be woven through every function. From governance and disclosures to hiring practices and compensation, our industry must examine every action for its ultimate impact on the client.

Increased societal contributions: Finally, it will take bold leadership, a long-term outlook and new attitudes to ensure our industry continues – or perhaps returns – to being a force for good. However, implementing change doesn’t have to be a Gordian knot. Small measures can have a profound impact on our society. For instance, during the hiring process we can focus on recruiting employees whose values and motivations align with client success and societal advancement.

Further, let’s rethink compensation models so investment professionals and clients have a greater incentive to hold a long-term outlook.

When it comes to the millennial generation, which views our industry with tremendous cynicism, let’s embrace the opportunity to demonstrate our commitment to creating long-term positive outcomes through the course of their lives.

We all know diversity of all types has been shown to improve performance and culture. It’s high time we meaningfully increase cognitive, gender and ethnic diversity within our investment teams so we all reflect and benefit from the widest range of perspectives.

The investment management industry powers our economy

From Brexit to the French presidential election, the current geopolitical environment continues to surprise even the most seasoned observers. Meanwhile a confluence of megatrends on this side of the pond – including demographic shifts, trends toward digitization and artificial intelligence, and downward pressure on fees and margins – have brought our industry to an inflection point.

The good news is that when we mobilize capital to create jobs, growth and wealth, the benefits to society are manifold. But it’s unlikely the headlines will be calling attention to this fact anytime soon. So it’s essential to recover the narrative that the investment industry contributes to the greater good in society by building prosperity.

To paraphrase a popular children’s tale: Do you remember Aesop’s fable about the grasshopper and the ant? The grasshopper spends the summer enjoying life, with no concern for the winter ahead. The ant, however, is busy preparing for the future. With change on the horizon, I know we won’t be the grasshoppers left out in the cold – and society will be all the better for it.