We have a problem!

When I was at school I was pretty good at Maths and I was told by my teachers that I should become an Actuary and work in the city. I was told the investment firms take the brightest minds, make them work very hard and in return, reward them very handsomely. It was all about money, status and power. This sounded particularly appealing especially for a guy saddled with debts from going through university in London.

For the past 12 years I have worked in the City, more than half of that in a medium sized fund management company. We invested people’s savings in equities (shares), property and bonds to earn them a better return than they might get from the bank. I could definitely say that we felt pretty good about our work and our role in society… until 2008… when things changed.

Over the past 4 years the image of the city has gone from intelligent, hard working, wealthy and often envied to being portrayed as greedy, crooked and immoral. That’s a big change to deal with psychologically and for me and many of my peers it’s been a hard reality to face.

Whilst some of these negative feelings maybe justified not just towards bankers, but also for politicians and corporates and the media; some of these feelings are quite unjustified. In general, most of the people I have worked with over the years are decent people, who work very hard, make many personal sacrifices and are quite conscious of their responsibility in managing their customers’ life savings.

There is no doubt that many people have lost a lot of money in recent times, markets have been unpredictable, banks are unstable, funds didn’t do what they said on the tin and its no surprise that the average person finds it hard to know who to trust and where to put their savings.

I want to change that.  I feel I owe it to the industry and the city that has given me so much. I know I can’t do it alone, in fact I don’t think any single company can either.  It will need us to work together across the city to rebuild society’s trust in our industry again.  It will need ideas … lots of ideas from all those that really care about the industry, the city and business.

Here’s one small idea that might make a difference – a change that might help us educate, inform and reduce information asymmetries to build a deeper contract with society (and our clients) and take a small step to rebuilding trust in the financial system:

Diagnosis:

Information is immensely powerful. The people that have information (experts in any industry) often use it to profit from those who don’t have it and who want it (consumers).

Now most people (and also organisations) act in their own best interests; most people respond to incentives; most people will be more inclined to do something if everyone around them is doing it.

So this information asymmetry gives power in the hands of a few, power corrupts, especially if incentives encourage it and everyone else is doing it – whether journalists (that need a story), car salesmen or insurance salesmen (looking for commission), doctors, estate agents or fund managers.

One solution:

We could use the internet’s power to shift valuable information from those who have it to those that want it (possibly with the kind of impact that the insurance market has seen, reducing premiums but increasing trust). Let’s educate the consumer about money, savings and investment.

For example, we could educate customers that “Day to day changes in markets are fairly random”; “the longer you hold on to your investments the better the chance of meeting your investment objectives”; “good things really do come to those who wait”; “fund managers/banks also benefit if customers to keep their money invested with them for as long as possible”. This in turn could encourage longer term contracts between fund managers and investors.

What ideas do you have?

To get involved take a look at the Future of Fund Management 2020 Challenge www.miteshsheth.com/challenge/

 

Leave a Reply

Your email address will not be published.