The investment management industry should work to rebuild trust with investors through a back-to-basics client relationship approach, combining improved communication and education, inc
The investment management industry should work to rebuild trust with investors through a back-to-basics client relationship approach, combining improved communication and education, increasing knowledge sharing, and bolstering corporate governance and risk management transparency, according to a survey commissioned by KPMG.
Overall, the results indicate that better communication holds the key to future success. These lines of communication should flow not only from investment managers to their clients, but also from investment managers to intermediaries and to regulators.
This message of the need for more effective communication manifests itself in a variety of ways, including calls by investors and intermediaries for additional training and transparency on products and strategy, for explicit acknowledgement by investment managers of their adherence to industry leading practice codes of conduct, and for more direct, face-to-face time with managers, among others.
In terms of the breakdown in trust, the research highlighted that financial intermediaries, in particular, are perceived as being untrustworthy and lacking knowledge, perhaps as a result of inadequate education by investment managers on complex products and associated risk management practices. In fact, 77 per cent of investors overall felt that intermediaries are less trustworthy than politicians.
To combat this perception, 58 per cent of institutional investors believe that investment managers should provide financial intermediaries with better product training in order to help them regain client trust, a sentiment matched by 75 per cent of investment managers themselves.
"At this time of market turbulence and broken trust, the investment management industry should adapt and change to re-engage investors," says Dave Seymour, partner and global head of investment management for KPMG LLP, KPMG International’s US member firm. "Open communication among market participants is particularly critical, and investment managers and intermediaries should forge collaborative, knowledge-based partnerships, focused on the client. By implementing a joined-up approach, supported by better corporate governance and risk management, the needs of the investor could be better met."
The research showed that managers do not have faith in their own senior-level management being able to drive this necessary change, especially with regards to risk management and corporate governance procedures: 65 per cent of investment managers globally cited lack of vision by top management as the major obstacle to change, leaping to 90 per cent of managers questioned in the US.
A lack of vision at the top is not the only obstacle to change and progress, however. The report also showed that the inevitable cascade of regulatory change is expected to significantly hamper the industry, with 81 per cent of respondents believing more regulation will remove opportunities for innovation going forward. There are also significant concerns regarding the cost impact of a new regulatory regime: 72 per cent of participants feel that a regulatory clampdown will seriously increase costs for investment managers, and 63 per cent think investment managers will not be able to pass on these associated costs to their clients.
Not everyone agrees on where the emphasis of the regulatory changes will fall. For example, 53 per cent of institutional investors believe that risk management and internal controls will be more strictly regulated in the future, while investment managers feel the focus will be on leverage limitations (77 per cent).