Deb Clarke is Mercer’s global head of investment research. Here, she provides a review on the CFA UK’s Value of the Investment Profession report, and discusses some of the wider implications of the findings for the asset management industry.
This report addresses the key questions for our industry and looks at how the industry might evolve going forward. It makes clear there is scope for improvement from all stakeholders. During a period of low growth, low inflation and unprecedented monetary policy, it is no surprise that many of the questions that have been asked in the past are coming to the fore and there is an increasing focus on seeing them addressed. We should not forget that at the heart of all these questions is the social need to help the investor achieve a better return on their savings and investments.
We are facing what may be a long period of low returns and higher volatility in markets. In that environment, we need to demonstrate the value we as an industry bring to the client through thoughtful, sustainable investing and taking an appropriate timescale. The focus needs to be on investing to generate a decent long-term return rather than trying to beat a benchmark, which may be irrelevant to the investor. This leads to more customisation of mandates and richer discussions with all stakeholders to ensure there is a clear understanding of client objectives.
The report looks at ways to demonstrate the value of our profession through better education, improved transparency and diversity in decision making. It also discusses ways to ensure that there are strong alignments of interest at all levels, including the companies to which the investment industry allocates capital. There needs to be improved alignment of acting in the interests of all stakeholders (not just management and shareholders) and also an appropriate long-term time horizon.
One way to make that happen is for the questioning to be focused on alignment and the long term and for people to be held to account.
There are many industries that have been disrupted by technology or new entrants. While this has occurred in some
areas of finance, this report addresses the areas where this is most likely to occur. This includes areas such as fee alignment,
consideration of both financial and non-financial analysis and clarity around understanding a strategy’s risk and returns profile
and expected outcome. In order for this to happen, the report quite rightly highlights the need for conversations between stakeholders and openness to new approaches – for example, using fixed fee with a performance fee rather than ad valorem fees, or changing the way managers are selected and held to account.
The investment world is moving to one where the client need is identified and all stakeholders look to help with a solution. This report provides insights into the financial world and challenges how professionals might evolve and behave in that environment.