Winning behaviours

As we enter 2020 and think about what the future may hold for the fund industry, it’s worth reflecting on where we are today.

Asset management has, overall, done a very good job over the years in terms of allocating capital across the economy and helping individuals fund their retirement. Just look at the proportion of the markets which are effectively owned by or on behalf of the so-called baby boomer generation.

So why is the asset management industry not getting the credit it may deserve?

Indeed, in the wake of Woodford and other challenges in 2019, the reputation of the UK fund sector seems to be at something of a low. Given the important role asset managers have to play in the economy and in helping us all fund our retirement, this is a concern. But what is the nature of this problem?

First and foremost, it is not a PR problem. It’s a behavioural issue.

Reputation is mostly defined by behaviour and, for CEOs and boards of fund companies, it’s important to recognise that to improve reputation you almost certainly have to change behaviour.

Reputations are of critical importance to any business as they dictate the extent to which others will do business with you.

Despite all the good that asset managers do, questions are increasingly being asked about whether they always act in the best interests of those whose money they manage.

The behaviours that have led to these doubts include the levels of fees and the lack of transparency around them, poor adherence to regulatory controls designed to protect investors, allowing notable liquidity mismatches to occur and displaying a disregard for client outcomes through poor conduct.

That these behaviours likely stem from a minority of individuals and organisations is sadly immaterial. Too many examples have come to light in recent years to be dismissed simply as outliers.

Key to this is to understand the behaviours that need changing and ensure that your business has the right culture to promote good conduct.

A ‘cultural audit’ can be a useful tool, as it can both help define the nature of the challenged you face and highlight where improvements are necessary.

Ideally, the starting point of this will be built around your clearly defined, well-articulated ‘purpose’ – the raison d’être that underpins your business.

If not, it will be difficult to ensure that everyone involved in this exercise is working towards a common goal. Whilst more asset managers have been exploring their purpose, articulation and differentiation remain notable sticking points.

Critics of asset management often point to a lack of diversity and a culture of trying to circumvent the rules as significant causes of why fund firms are where they are. Overcoming such challenges will rarely be straightforward and, without being championed at board level, almost impossible.

Irrespective of the internal hurdles, there are also external structural obstacles to overcome.

Asset management is not part of a supply chain which is particularly forgiving of change and corporate instability, so the solutions will often necessitate working more closely with those who buy or recommend your services, so that they understand the process you are going through.

Whilst the recent commentary from investment consultant Willis Towers Watson about ending their relationship with certain asset managers over cultural issues was not that big a surprise in itself, what was unusual was that they articulated this so publicly.

Once the problem as it relates specifically to your business is properly understood, then it’s time to prepare an ongoing reputation management plan to move the business forward.

If this comes after a period where a behavioural problem has had a direct impact on your reputation, then ideally the first public move would be some form of ameliorative behaviour.

As the recent furore over Prince Andrew’s Newsnight interview demonstrated, trying to tackle a ‘behavioural issue’ purely within a ‘comms’ or PR framework simply does not work.

Importantly, this should be an iterative process. Businesses and the markets in which they operate evolve, and plans need to adapt accordingly.

Moving into 2020, a key question for asset management CEOs and boards has to be whether their approach to managing their reputation is fit for purpose in today’s demanding world.

Getting it right or wrong will have a direct bearing on the long-term success of the business.

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