Advancing the Investment Profession by Putting Investors First

An excerpt from my address at the 68th Annual Conference, Frankfurt, Germany, 27 April 2015. Watch the video recording.

I would like to frame my remarks this morning by saying that I would like to help move our conversation, as an Institute, forward to discuss how we can better deliver our mission to lead, to build the investment profession for the ultimate benefit of society. I want to look forward, not back. I want to urge us all to work in a more purposeful fashion to build a profession in a way in which we can all be proud.

We’ve spent a large portion of the last 5 years taking about trust and how it is an essential ingredient for our profession to succeed. This has been a hugely important and worthwhile effort, and we must keep on talking about trust and the need for ethics in our profession. But that has largely been a conversation that has been about history. We must now add to this conversation, we must talk about two other issues of great importance.

One is technical competence, how good are we in what we do? And secondly, about the necessity of proving better to society at large our technical competence and our trustworthiness, because only then will we get the buy-in from society that we seek and truly establish and build our profession into the future.

Indeed, our profession has been through a lot over the past few years. We all know that the global financial crisis has left a terrible wound that has not yet healed. Society does not seem to attach a high value to our profession and at times I’m afraid I can see why.  

At the same time, the world around us is changing fast. And the investment management business will have to change to keep up with the times. I’d like to paint the picture of the changes yet to come as we look at the future of investment management at this conference and try to give you three actions you can take back to your communities.

Between 2010 and 2020, or over the next six to seven years, it is predicted that an additional one billion middle-class consumers will emerge globally, representing the largest single-decade increase in clients in history. These increases will be primarily due to 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 middle class people. Our client base is set to explode. Add to this prediction the global investable assets for the asset management industry are expected to increase to more than $100 trillion by 2020, with an estimated compound growth rate of over 6% per annum, so much higher than global GDP growth. Citizens and businesses around the world need our expertise now, and will need us more than ever in the years to come.

Despite ourselves, the industry is growing. There is a problem, however. Clients don’t see our value. We have to convince them that investment professionals work to both meet client’s investment objectives and to create positive social impact.

Our contribution to society is essential because we connect those who need capital with those who are willing to loan it. Many people’s hopes and dreams depend on this capital as we know — new businesses, mortgage savers, people saving for retirement and for their children’s education.

Does society value this work? I don’t think so.

Have we done enough to demonstrate our value? Honestly, I don’t think we have.

We have to deliver the clear message to investors and policymakers that we are a force for good, one that places the interest of investors above all else.

Though we have a solid foundation from which to address the future and partner with industry leaders for change, we have considerable work to do to advance the investment profession throughout the world. In fact, I would question our very status as a profession. The benefits provided by a doctor or lawyer are clear, crystal clear to the users of these services. But this isn’t always the case for investment professionals. In essence, we need to do a better job of explaining ourselves to our clients and justifying the fees that we charge. There’s too much self-medication in the investment world.

How will we do this? I would like to lay three actions before you today and charge you all with the personal responsibility to push these forward within your own firms and within your own communities:

Firstly, 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 he or she is qualified and competent to diagnose whatever it is that ails us. Investment managers don’t yet have this level of respect and trust from society; many of our colleagues have few, if any, qualifications. Make sure your colleagues know about and pursue the best finance education available. Those of us here know that this is the CFA charter.

Don’t stop with the decision makers. Just as doctors depend on nurses, make sure those colleagues who support your work meet a high standard of education. The Claritas Investment Certificate is designed to fill that gap. How can you do your job properly if the 80% or 90% of people in your companies don’t share the same vocabulary, the same training that you have, at least in part? We all have a personal responsibility to spread the word about the need for well-trained people throughout the investment management value chain.

Secondly, let’s amplify our impact by engaging with investment management industry leaders in our communities and worldwide to better partner with them and develop professionalism at every level of their firms.

Currently, CFA charterholders are employed at more than 31,000 firms worldwide. We have more influence than we think we do in our own profession. Yet only 1,100 firms worldwide have adopted the Asset Manager Code of Conduct that we promote. I ask myself what the other 30,000 firms that CFA charterholders are employed at are doing in this regard. And what are we doing as individuals within these firms to promote our standards and our education to our colleagues?

Your reputation as an investment professional is tied to the reputation of the firm that employs you. We need to effect change from the inside out, and this means building deeper relationships with senior levels of firm leadership globally.

Our profession also has a diversity problem. For too long, our profession has been dominated by middle-aged, middle-class men. And I stand before you as one here today. We need to hire and promote more women within our businesses. Studies show that mixed gender teams bring much needed diversity of thinking to the investment process and improve investment outcomes. Further, women are poised to play a significant role in the global economy in the coming decade, with nearly 1 billion women who could enter the global work force.

For the first time, CFA Institute is hosting the Women in Investment Management conference in San Antonio, Texas, between June 2nd and June 3rd this year. Please do try to attend, if you can. Let’s show our support as a family for positive change.

Thirdly, we have to make change happen by advocating for policy, research, and thought leadership that benefit investors and society at large. This will foster the health and future success of the investment management profession.

Investors have the right to be served by professionals who act as fiduciaries of their savings -- a hot topic, I know, in the US at present. They also deserve an underlying investment environment that is fair and transparent. As a professional body, it is our duty to exercise discipline within the profession and ensure that the profession nurtures an environment where investor interests are placed above all others.

One way CFA Institute is getting this message out is by partnering with our member societies to launch the second Putting Investors First Month campaign. This year’s awareness campaign will encourage the global investment community to endorse and share the Statement of Investor Rights.

This is a list of ten rights that any investor should expect from financial service providers. Throughout the month, many of the organization’s 144 member societies worldwide will call attention to the needs and rights of investors.

We also have an opportunity to play an influential role in developing the investment management industry in emerging markets globally as well, where rules and best practices are still being shaped. This is very much the case in India and China where we recently opened offices in Mumbai and Beijing. Personally, I have seen first-hand the impact that we can have and the positive influence we can be in the developing world. I think we underestimate that hugely. As I get into my new role, I am quite sure I will discover the same conditions in Latin America, Africa, the Middle East, and emerging Europe. It’s by far and away the most exciting part of my job, seeing the deep level of engagement that we can have with regulators in the developing world and the impact that we can have on best practices in those communities.

To wrap up, as one CEO put it, “We are in the twilight zone of a great transition. Letting go of the familiar and embracing an alternative narrative will call for courageous conversations and deep collaboration across disciplines.” If our actions are to make a difference, we need to get out of our comfort zones. During my tenure, my mission is to have more measurable impact with the profession, regulators, investment firms, investors, and society.

Let’s make the world a better place for investors and, in turn, generate greater benefits for society.