Financial System Must Work For Everyone, Not Just Us, CFA Chief Says

Shutterstock photo

CFA Institute chief executive Paul Smith took the stage in Philadelphia yesterday at a delicate moment in the asset management industry: Passive strategies overtaking market share, software replacing humans, and far-reaching proposals by the Department of Labor that are upending the regulatory regime.

Smith did not mince words when he addressed nearly 2,000 of the industry’s leaders and thinker at the group’s annual meeting.    

“The investment management industry has stuck with a retirement paradigm that is well past obsolete,” he said. 

“It’s a paradigm that has contributed to the privilege of the personal success we all enjoy.  But privilege comes with a responsibility to stop merely driving fees — and to make the system work — for everyone, not just for ourselves.”

In his view, Smith believes he is fighting for the survival of the industry, and in his keynote address at the group’s annual meeting, drew parallels to several industries — entertainment, travel, retailing — that were “pulverized” by disruptive forces for want of accepting, and more importantly, embracing change.

The key challenges which Smith believes the asset management industry must address are reclaiming trust and defining value for the customer.  His prescription:

Revise business models. Operating margins are generous ranging from 34% to 39% he noted.  “The image of the investment professional who always prospers, whether the client sinks or swims has got to change.”

Drive the regulatory agenda. “We must engage with regulators everywhere so they protect investors without duly tying the hands of business. We, as a profession, must earn the right to drive the regulatory agenda.”

Re-engineer recruiting. Smith noted the widespread presence of passion in the asset management profession that is not attached to purpose, or simply attached to the passion of making money. “We need more people in our industry who have clear ethics and a sense of purpose.”

Embrace technology. Smith said that while new technologies have been disruptive and have caused the demise of several businesses, they have also enlarged the pie for better positioned players. “They provided better value.  And in the asset management industry, the firms that provide the most value to investor will survive and thrive.”

Disclosure: The author consults to CFA Institute.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , Financial Advisor Center , Economy

More from David Evanson


David Evanson

David Evanson

Research Brokers before you trade

Want to trade FX?