Investors Want Honest Money Managers Over Double-Digit Returns

19 August 2013

3 minute read

Investors Want Honest Money Managers Over Double-Digit Returns

While investors are surely enjoying the recent performance of the market, they’ve yet to fully come around and embrace Wall Street. It seems recent scandals have taken their toll.

Only 53% of investors trust investment management firms to do what is right, according to a recent survey by the CFA Institute. Financial services remains the industry least trusted by the general population.

The situation is even more dire in the West. Just 44% of U.S. investors and 40% of U.K. investors trust the people and firms that handle their money. This is despite overall confidence in the how the market operates. Roughly 70% of U.S. investors are optimistic about their fair opportunity for profit in capital markets.

For investors, it’s a people problem, not a performance issue. When asked which actions help cement a positive, trusting relationship with their money manager, investors surprisingly didn’t point to performance as a key indicator. The three most important attributes were transparent and open business practices; responsible actions to address an issue or crisis; and ethical business practices. Amazingly, performance didn’t even crack the top five.

While negative at first glance, the report may be read with optimism by some money managers. Investors no longer demand Madoff-like double-digit returns. They just want someone who’s not going to screw them over. It’s good to see that there is more room at the table for those folks.

Investment Banking Cheat Sheet (eFinancialCareers)

Here’s a list of actual interview questions asked of Ivy League MBA students by U.S. investment banks, along with suggested answers compiled by the candidates themselves.

Paying for Pain (Chicago Tribune)

Administering Dodd-Frank isn’t cheap. The Federal Reserve passed a rule on Friday that will enable it to collect $440 million annually from 70 of the nation’s largest financial firms to cover additional oversight costs. Banks can’t feel great writing that check.

Just a Name (Bloomberg)

The Merrill Lynch name will continue to exist, but the legal brand has just a few months remaining. Bank of America plans to dissolve the subsidiary, taking on all of its obligations and debt, within the next few months.

How Many Will Stay? (eFinancialCareers)

SAC Capital’s top talent is highly hirable despite any taint brought on by the insider trading probe. Several traders have already left. Meanwhile, SAC has reportedly refused investor requests to speed up asset redemptions. Of course they have.

Alternative Investment Probe (WSJ)

Regulators are looking into whether securities firms are taking advantage of “mom and pop investors” who may not understand the costs and risks associated with alternative products. The Financial Industry Regulatory Authority says it plans on filing civil actions by the end of the year.

Board Appointment (NASDAQ)

PNC Financial has named BlueMountain Capital Management co-founder Andrew Feldstein to its board.

Robbery (Business Insider)

Two billionaire hedge fund managers got robbed of more than $100,000 worth of jewelry at a glitzy Park Avenue apartment building.

Buzz Around the Office

When Your Boss Gives You Lemons…(Business Insider)

Not every construction worker has fancy tools like pulleys or elevators, so when you need to haul cement up to the roof, you get creative. Skip to the :42 mark for some good fun.

List of the Day: Tips for Bosses

Newly promoted? Here are a few tips to get your new employees on your side.

Announce an open door policy, and mean it.

Meet with each person individually to hear their ideas and concerns.

Treat everyone fairly, but not necessarily equally.

(Source: AOL Jobs)

AUTHORBeecher Tuttle

US Editor

1 comments

Ri
Richard_A_GA
19 August 2013
Regarding the lead article about investors wanting honest money managers, in my experience the results of the CFA survey are more wishful thinking than reality and are affected in large part by the 2007-08 financial crisis still weighing heavy on peoples' minds. I've lived long enough to have observed multiple financial melt downs and recoveries. The results are always the same - while the downturn is within memory, investors are risk averse and seek safety, caution, and protection of their investments from their advisers. When market values are rising dramatically, most investors clamor for high returns. No one (or at least very, very few) ask the question "What types of illegal/unethical/questionable things are the money managers doing to achieve super high returns?". Instead, they are calling their own money managers every day threatening to shift their accounts if the manager can't get them the same returns that their golfing, tennis, or drinking buddies are getting.
The article also slightly misrepresents the results of the CFA study. It is true that achieving high returns did not place highly as a factor for building a positive, trusting relationship. However, the more relevant point is the Figure 3 graphic in the CFA survey showing the results of asking "Which attribute is most important when making a decision to hire an investment manager?". For that question, achieving high returns was tied for the number 2 factor. The number 1 factor was "Trusted to act in my best interest." I bet more than one survey respondent was thinking that high returns show the manager is acting in his/her best interest.
I will not believe that investors prefer honest money managers over high returns until I see large numbers of investors switching their accounts during up market runs from high return/low ethics money managers to high ethics, moderate return money managers. I won't hold my breath waiting for that to happen.
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