Career Risk vs Client Interests: Is Phi the Answer

Given our recent discussions with advisors and the never-ending pressure to generate outsized performance across all time-frames and market environments, the results of this recent CFA Institute/State Street Center for Applied Research study are no surprise to us. Even so, it is a bit disheartening that only 28% of investment professionals said “they remain in the investment management industry for the purpose of helping clients in achieving financial goals.”

It appears “career risk” gets in the way for many asset and wealth managers, as 52% of professionals believed they would be fired after 18 months of underperformance. This has led to 36% of respondents reporting that acting in the best interest of their clients implies taking on career risk, since they can’t optimize to the longer-term investment horizon that investors should be focused on. Given this environment, it is difficult for asset managers and advisors to stick to their guns and do what is right for the end client.

The study does go on to give a solution to how we, as investment professionals, can right the ship through proper motivation. They attempt to quantify this motivation via what they dub “phi”: a mindset to deliver performance that’s driven by purpose and embedded by habits and incentives. Give the study a read, at the least it will force some introspection and perhaps at best produce some sorely needed change in our industry.