Is the concept of social justice useful in our conversation on how to make the investment industry work better for clients? David Clarke, CFA talks to Ansumana Bai-Marrow of BlackRock and Eoin Murray of Hermes.
Left: Ansumana Bai-Marrow, EMEA Lead Fixed Income and Cash Compliance Advisory at BlackRock
Right: Eoin Murray, Head of Investment at Hermes
Tell me about how you ended up in your role and why you’re interested in the work of the group.
Ansu: I started my career in regulation, at the FSA, not in fund management. I had studied economics and development studies at the University of Sussex, which is known as an institution that’s interested in social justice. I’d always had a leaning towards protecting the underdog and making sure there’s fairness, and I suppose when you put finance together with that underlying desire to seek social justice, what you get is compliance. Interestingly, when I started out in the industry, there was almost that feeling that compliance wasn’t a proper investment management role and even I thought, “when am I going to go over into the business function?” That’s all changed now.
So I am looking at these issues through a compliance lens. But importantly in the working group we have different people bringing different skills and perspectives.
Eoin: My entry into the industry was far more ignoble – as a callow youth I came down to London, and I don’t think I had any sense of what I wanted to do. I went in as an investment banking graduate and fell into investment management two years later. For me, working in finance was exciting and lively, and an intellectual challenge. I have changed a lot in 26 years and now it’s very important for me to have at heart the interests of our beneficiaries.
I contrast my background with that of my eldest daughter, who graduated two years ago. It was very interesting talking to her friends about their career choices, and they did not see finance as something they wanted to do. For me and for them, it had largely lost trust, so I felt there was a huge obligation to get that back and make it a popular choice for the best and brightest graduates, who otherwise now would head off to the IT or the charitable sector.
Has the industry changed in your time?
Ansu: I remember the introduction of TCF [treating customers fairly]. There was an uproar: people were asking, “what does this all mean about treating customers fairly? Of course we do that”. It was seen then as very fuzzy but, over time, that view has changed. What I see now is an interest in these issues and what we are trying to achieve. Senior management are far more concerned about the compliance culture of a firm. It’s more than just being seen as ticking a box.
Eoin: I think it depends. Certainly Hermes has been at the forefront of investing responsibly for many years and the role of the CIO has always been one in which the financial return we provide is only part of the puzzle. The whole picture is only revealed when you consider the non-financial aspects of what we do – it’s all about the total overall outcome for our beneficiaries.
What are you trying to achieve?
Ansu: We are trying to change things for the better and improve the reputation of the industry and of the profession, something that is working for the benefit of society and for investors. We want to come up with concrete recommendations, some tasks that the industry can pursue. We want a voice at the table with policy makers and regulators and the chance to influence the debate.
Eoin: Like Ansu, I think we have a unique opportunity to make concrete recommendations in the hope that the CFA Society will adopt them, and will change the way the industry works and how it is perceived. There are plenty of bodies having similar conversations around the city, but I’m not sure how many have moved beyond thought pieces into concrete recommendations; that is absolutely the key here.
But it would be better if the recommendations didn’t become rules – that they become so broadly adopted that firms really don’t have a choice if they want to be taken seriously. That would be the ultimate aim.
Down to the nitty-gritty – are costs too high?
Eoin: I can’t speak for the group as a whole, but if you look at the margins of the industry they’re in the 30- 40% range and there aren’t many industries that support such high margins and have done so consistently over time. That would lead to the conclusion that something probably needs to change to balance things out properly viz-a-viz the beneficiary.
That does not mean that costs are simply too high – you have to look at costs in respect of outcomes. If you’re producing poor outcomes on the whole then yes, arguably costs are too high.
Why isn’t competition shaking this out?
Eoin: Probably a lack of transparency, and too many bodies in the value chain obfuscating what real outcomes are and what it’s costing. To the extent that our group helps provide transparency and clarity then we have justified our existence.
Ansu: When you talk about costs it has to be about transparency and there has to be a clear value proposition. People should always know what they’re paying for, and for those asset managers who put in greater effort into developing a capability/ expertise, there are costs associated with that, and clients need to be aware of that.
What are the challenges for your group?
Ansu: Profit margins are always going to be challenging, as costs and the way we can cater for costs are different from firm to firm. There are going to be different ways in which we do things but if we can add to the conversation in terms of how we should be standardising, that would be a good thing.
Eoin: Our focus in the working group is on costs and competition. Although on the surface it might appear that everyone agrees, I have a sneaking suspicion that agreeing on common disclosure will be very challenging indeed!
And the FCA’s recent interim report – a help or hindrance?
Ansu: It’s great timing. There is a zeitgeist and a wind of change – we are in exactly the right spot at the right time to help influence this discussion.
Eoin: I feel strongly, after the FCA’s observations, that our journey down this route is now unstoppable. We all know the journey is made up of many small steps – there will be two steps forward and one back, but we will make progress.