What are the hallmarks of a true profession? A robust qualifications framework? A rigorous code of conduct? A genuine commitment to continuing development? These are undoubtedly noble indicators, but I would throw one more into the mix: an attitude that welcomes criticism in order to better itself.
A profession does not surround itself with yes men. Doctors, for example, call each other out on bad practice. They are not afraid to be told they lack the skills for the operation they are performing. Lawyers (not claims sharks) know putting a foot out of line will incur the wrath of self-regulation. They understand why they have the reputation they do, and training at City firms has raised the bar accordingly.
I’m not sure this is the case for asset managers. At least not yet. A passive manager who says active managers are not offering value to customers doesn’t really get there – their motive appears commercial rather than altruistic in most cases.
This hits on an underlying reason why asset management has not attained a true status of professionalism: the investment industry and its clients may not necessarily want the same thing.
Yes, an ad valorem fee structure encourages managers to grow clients’ pots, but the fact remains that, at any listed company, a duty to shareholders, not clients, comes first – a reverse of the medical profession’s Hippocratic Oath if ever there was one.
The investment industry and its clients may not necessarily want the same thing
The road forward is the subject of our cover story, on the back of the Investment Association’s 2025 Vision report last week.
I don’t see any easy answers. Let’s say we made clients explicit shareholders by making more companies mutuals. How would those companies then raise the capital needed to either innovate or protect them in an uncertain future?
Aligning client and manager interests through performance fees is wonderful, but only if you completely buy the premise that every inch of outperformance is down to skill, not luck.
In the future, the purpose of the asset management industry may end up looking more like that of financial planning. Instead of its job being to shoot the lights out by being super-active, it may be there to ensure peace of mind and design products to meet clients’ psychological and ethical needs.
Yes, the advice market as a whole kicked up a pretty big fuss before RDR came in, but most have come to realise what a good thing it’s been. Similarly, the investment management market seemed completely affronted when the FCA had the temerity to question whether some active managers really were delivering value.
In time, I think asset management will come around too and acknowledge that, as painful as it may be, maintaining the status quo simply isn’t an option.
Justin Cash is editor of Money Marketing
Follow him on Twitter @Justin_Cash_1