How Can Investment Firms Find their Way to Greatness?



The CFA Institute Annual Conference is an unrivaled opportunity to access high-quality, unbiased educational content that equips investment professionals with the latest thinking on critical industry issues. The 72nd CFA Institute Annual Conference will be held in London on 12–15 May 2019.

At the 70th CFA Institute Annual Conference, a panel of business leaders considered a challenging question for investment professionals: What makes investment firms great?

Paul Smith, CFA, president and CEO of CFA Institute, was joined on stage by Joseph Brennan, CFA, principal and head of the equity index group at Vanguard; Tina Byles Williams, founder and chief investment officer of FIS Group; and Leo P. Grohowski, executive vice president and chief investment officer at BNY Mellon Wealth Management. Smith challenged the group to consider whether it takes more than just performance to truly make a firm great, and if so, what did they think it was?

RELATED: Motivation as the Hidden Variable of Performance

The group was unanimous: the people drive performance. But beyond merely “finding good people,” mission and a sense of place in society were important to all concerned.

For Brennan, culture fit ranked highly, but balanced with a mission orientation, passion, and curiosity. In his opinion, solely focusing on results won’t cut it.

Williams echoed his sentiments, explaining that when considering investing in a firm, she looks for management who view their firm as the embodiment of what they love to do — a channel for perfecting their craft. Those who say that they built a firm to make money are quickly passed over by Williams.

For Grohowski, technical ability is merely the starting point. Developing and retaining staff with strong personal skills, perspective and client empathy are crucial.

On strategy, performance, and technology, discussions quickly moved to active versus passive approaches. Grohowski was quick to share his surprise at how few high-net-worth individuals embrace tax-managed active strategies, stating that better active returns are often generated in tougher markets.

On the topic of exchange-traded products, Williams shared her concerns that they could underperform in some arenas, such as international, emerging, and frontier markets.

Brennan noted the risks, but called for focus on the use of the tools rather than the tools themselves. As he put it, “sharp knives are not necessarily the risk, but how you use them.”

One area of agreement was that clients do not necessarily frame the issue as active versus passive. They are looking at high cost versus low cost, and clearly expressing a preference for lower costs. A perspective shift is needed in the investment industry, and soon.

At a time when only 15% of investment managers are female, it was the topic of diversity that drew the most discussion. Recognizing that CFA Institute itself has much work to do here — just 18% of CFA charterholders are female — Smith began by asking the panel to comment on why the industry still suffers from poor gender representation despite growing acceptance of research showing that diverse teams produce better outcomes for investors. With strong consensus that greater diversity is required in the industry, discussions centered on how best to drive this, and the pitfalls to be wary of.

Brennan was quick to clarify that while diversity is important, inclusion is critical. Diversity without inclusion will cause more problems than it solves. In Brennan’s view, firms must engage with potential recruits much earlier in the education cycle and through nontraditional routes, citing Vanguard’s work to engage with a broader spectrum of schools who had a proven record in fostering results from diverse communities.

Grohowski addressed the audience of investment professionals directly, urging them to dig deeper — ask awkward questions, and find out whether the leaders of the firms that they have invested in are truly working to improve diversity in their organizations.

Paraphrasing Christine Lagarde, Williams insisted that better gender diversity is not only a moral imperative, but an economic no-brainer. However, analysis should not merely focus on gender representation within firms, but specifically within the leadership of those firms, in order to truly unpack cultural and developmental issues. Issuing a reality check, she reminded the audience that “cultural fit and diversity will collide times, but it’s a management challenge that is worth it.”

With neither panelists nor CFA Institute claiming the moral high ground for their diversity accomplishments, it is clear that the challenges here are complex and intricate, but not unassailable.

So, is there a clear path to greatness for investment firms, across a landscape such as this?

Having heard John C. Bogle speak earlier in the conference, many would conclude that greatness is indeed achievable, and true greatness — serving clients and society well — should, and must, be pursued.

As with any great journey, those seeking to blaze a new trail must prepare well, be willing to face more questions than answers, balance pragmatism with boldness, and be prepared to cross boundaries. Those who carry the torch today light the path for many to follow.

Experience the 70th CFA Institute Annual Conference online through the Virtual Link. It’s an insider’s perspective with archived videos of select sessions, exclusive speaker interviews, discussions of current topics, and updates on CFA Institute initiatives.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo courtesy of W. Scott Mitchell

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