Elizabeth Corley, CEO of Allianz Global Investors, boldly told the audience of investment professionals at the 2014 European Investment Conference that the investment industry doesn’t exist unless customers give it money. Corley challenged the industry to act quickly to change its behaviors so as to be regarded as more trustworthy by its customers.
Corley opened her morning session at the London event by citing Angel Gurría, secretary-general of the Organisation for Economic Co-Operation and Development (OECD): “Trust is the spinal cord of economics. It is a crucial ingredient for finance, successful business, growth, and development.” However, Corley’s emphasis was not on the content of this message but rather that this statement was from 2009 and that, in her eyes, nothing seems to have changed over the past five years, with virtually no resurgence in trust in the industry. She shared the 2013 Edelman Trust Barometer, which reported that the financial services industry was cited as the least trusted industry by the public — even behind the media, which at least cheered the conference’s moderator James Mackintosh of the Financial Times.
Perhaps sensing the audience (of mainly European investment managers) might now be hiding behind their morning coffees, Corley was quick to share statistics from a PricewaterhouseCoopers (PwC) report “How Financial Services Lost Its Mojo — and How It Can Get It Back,” which showed that investment managers are languishing at the bottom of financial services, with more people trusting both investment and retail banks than investment management firms.
As Corley stressed, this lack of trust is not just an opinion, the industry’s customers are voting with their feet; the growth of crowdfunding implies that investors are more willing to trust someone they have met over the Internet than their financial adviser. However, Corley did share that the lack of trust in “institutions” is not purely a financial phenomenon, citing the tripling of seats for politicians from the more extreme parties in the United Kingdom.
So, what is needed and how can the industry change? Corley challenged the asset management industry to stop “burying its head in the sand” and acknowledge this “trust deficit” and to do so quickly. The deleveraging of banks and the aging population are just two of the macro trends that indicate that the cash flows toward the investment industry will continue to grow.
And while these increases in cash flows may provide optimism to those managing the asset management firms, Corley contends that “the risk lies in not taking risk.” State Street’s Center for Applied Research asked retail investors into which asset classes they currently invest in and in which they plan to do so in the future. Cash was king and came out top. The message to the industry from Corley is that this was because investors do not trust investment institutions and that has to change.
So, what was Corley’s recommendation for making change? Quoting a PwC report, “Asset Management 2020: A Brave New World,” Corley called for asset managers to get out of their “ivory towers” and realize they are not doing enough to be trusted by investors. Corley reminded the audience that the reason for the industry’s existence is to connect the cash flows with the needs of the economy (for example, the building of infrastructure), which in turn generates returns for investors. Those investors are the clients who should be the focus of every firm.
Corley left the audience with some strong calls to action. For those managing firms, she demanded that clients be put at the heart of product design and that there must be an awareness of the level of understanding of those clients when communicating about products, making the messaging simple and clear. For the wider industry, she called for greater transparency and better coordination around codes and standards. Having 42 different sets of codes, with seven in the foreign exchange market alone, shows how the industry is not putting the client at the heart of everything it does.