By Aaron Filbeck, CAIA, CFA, CIPM | Associate Director, Content Development at CAIA Association
The financial services industry is often touted as a “people business.” Whether you are a portfolio manager, a financial planner, a salesperson, or a trader, you probably interact with other investment professionals in some capacity. To varying degrees, relationships with each other and with our clients drive our decisions daily.
But our industry is rapidly evolving, and organizations have tried to keep up. As we move from an industry to a profession, the way we conduct business, our organizational cultures, and the client value proposition will ultimately need to evolve alongside it. Furthermore, the way technology is impacting our industry, technical skills will become table stakes and soft skills (analytical prowess, problem solving, creativity, flexibility, and relationship building) will quickly become differentiators for investment professionals.
Whether it’s goals-based investing or putting purpose over product, organizations of the future will have to find ways to utilize soft skills to coalesce around the client once more and build incentives for stakeholders to ensure better alignment. We’re certainly talking about it, but actually doing it ultimately comes down to good leadership with a strong organizational culture. My hope is, in the future, putting the client first won’t be controversial and capitalism can be augmented to support and empower stakeholders, not view them as an inconvenient cost center. After all, the knowledge economy is growing, and intellectual capital will ultimately become the biggest source of differentiation.
On this topic, I would encourage you to read a recent report from Thinking Ahead Institute (TAI) that more eloquently details the importance of strong culture, and how organizations benefit from it. They cover multiple subjects, but to me, it comes down to alignment, engagement, and leadership.
Alignment around the client. Asset owners answer to their members, while asset managers answer to their shareholders. The investment industry is a for-profit business, which means all participants are naturally drawn to maximizing profits and protecting their own self-interests. But perhaps there’s a way to re-define the way we think about maximizing our own self-interests. Can we bring the clients we serve along for the ride?
Leadership to bring it together. While good cultures typically have buy-in from everyone involved, it must first come from the top. There is a saying that people don’t leave bad companies, they leave bad bosses. Culture is mean reverting, meaning strong leaders must constantly reinvent, shape, and influence it. This is increasingly more important as we continue to be subject to constant disruption. Different leadership styles will be called upon at different times (TAI identifies three kinds of leadership characteristics – servant leadership, dominating leadership, and transformational leadership).
Engagement and incentives for the stakeholder. Talking about your “good culture” can give us all that warm and fuzzy feeling, how does it look in practice? For the employee, setting expectations, actively engaging with the culture, and incentivizing performance that aligns with the mission and values of the organization will be key drivers of culture. As TAI puts it: “Leadership’s influence starts with how it uses incentives. People respond to incentives; the rest is commentary – is the one-line definition of economics. To obtain better cultures, we need good incentives to nurture that culture”
Even in small organizations, there is rarely only one culture, even if there are common goals and values company-wide. It’s very common to have microcultures, perhaps driven by regions, function, or political structures. These microcultures, if properly represented, can lead to better representative and cognitive diversity for the organization at large. In my view, our industry has a long way to go in this regard and, as we build investment organizations of the future, proper diversification doesn’t necessary just apply to securities in a portfolio, it applies to people. It’s going to take a concerted effort from many to stand up and begin some uncomfortable introspective conversations.
While I am an optimist, I recognize that cultural shifts aren’t easy. I also believe that the organizations who are successful in building strong and genuine cultures will be able to set themselves apart. We all need to take part in building trust with the next generation of investors, be purposeful about the organizational cultures we create and influence, and ultimately realign the value proposition to focus on the end investor. So…when you look at your organization, why do you stay?
Aaron Filbeck, CFA, CAIA, CIPM is Associate Director, Content Development at CAIA Association. You can follow him on Twitter and LinkedIn.
Seek diversification of portfolio and people, education, and know your risk tolerance. Investing is for the long term.