CFA UK paper on the value of the investment profession

CFA UK have recently published a paper entitled The value of the investment profession, in which they report the results of their discussions with 200 people across 100 organisations (10 of which are members of TAI).

The paper says many good things, and is comprehensive – but, be warned, it is long. Being written by a CFA society it is open to the accusation that it is written by intermediaries in defence of intermediaries. For example, the paper talks throughout about the ‘profession’ of investment and I do not recall a single reference to the ‘business’ of investment. I understand why CFA UK would want to emphasise ‘profession’ – its members are individuals, and those individuals act in a professional manner in the vast majority of cases. At the same time, however, the vast majority of those individuals are also employed by for-profit businesses, and I don’t think we can afford to overlook that aspect.

The paper suggests that the value provided by the ‘profession’ lies in meeting client needs and in capital allocation. With respect to the latter it identifies (1) investing in new capital, (2) pricing existing capital, and (3) stewardship of clients’ capital. There is clearly truth in all of these points, but…

  • Product proliferation is not meeting client needs
  • The TMT bubble would suggest that the profession’s skill in investing in new capital could do with some honing, and
  • The GFC and behaviour of banks would suggest that the profession has also not yet completely mastered stewardship.

That said, picking holes is easier than being constructive – so CFA UK should be commended for taking on this difficult topic. For those that are time-poor the report is usefully summarised in 26 bullets on p4. While my personal view would be a preference for CFA UK to have taken a less-hedged stance, there are 3 bullets that call directly for change – and which I believe should be non-contentious for the majority:

o          The investment profession’s value proposition is not well understood and should be communicated more effectively

o          The cost of investment is not easy to discern and there should be improved transparency and disclosures in relation to fees and charges

o          The profession should do more to make sure that it is recruiting and maintaining diverse teams.

The last of these clearly gels well with one of the research streams that TAI has been pursuing.