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Improvements in Communication Required


Date: Wednesday, June 24, 2009
Author: KPMG

Improvements in Communication Required to Help Repair Trust in Investment Management Industry, KPMG International Survey Finds


New research identifies need for transparent communication, additional risk management disclosure and thoughtful regulation

NEW YORK, June 22 /PRNewswire/ -- The investment management industry should work to rebuild trust with investors through a 'back-to-basics' client relationship approach, combining improved communication and education, increasing knowledge sharing, and bolstering corporate governance and risk management transparency, reports a new investment management survey entitled: "Renewing the Promise: Time to mend relationships in Investment Management". KPMG International commissioned Datamonitor to undertake the research; the results of which were announced today at Fund Forum International in Monaco.

Overall, the results indicate that better communication holds the key to future success. These lines of communication should flow not only from investment managers to their clients, but also, crucially, from investment managers to intermediaries and to regulators, as they will play a fundamental role in repairing the trust that has been broken. This message of the need for more effective communication manifests itself in a variety of ways, including calls by investors and intermediaries for additional training and transparency on products and strategy, for explicit acknowledgement by investment managers of their adherence to industry leading practice codes of conduct, and for more direct, face-to-face time with managers, among others.

In terms of the breakdown in trust, interestingly, the research highlighted that financial intermediaries -- client-facing advisors -- in particular, are perceived as being untrustworthy and lacking knowledge, perhaps as a result of inadequate education by investment managers on complex products and associated risk management practices. In fact, 77 percent of investors overall felt that intermediaries are less trustworthy than politicians.

To combat this perception, 58 percent of institutional investors believe that investment managers should provide financial intermediaries with better product training in order to help them regain client trust, a sentiment matched by 75 percent of investment managers themselves.

"At this time of market turbulence and broken trust, the investment management industry should adapt and change to re-engage investors," said Dave Seymour, Partner and Global Head of Investment Management for KPMG LLP, KPMG International's U.S. member firm. "Open communication among market participants is particularly critical, and investment managers and intermediaries should forge collaborative, knowledge-based partnerships, focused on the client. By implementing a joined-up approach, supported by better corporate governance and risk management, the needs of the investor could be better met," he added.

Notably, the research showed that managers do not have faith in their own senior-level management being able to drive this necessary change, especially with regards to risk management and corporate governance procedures: 65 percent of investment managers globally cited lack of vision by top management as the major obstacle to change, leaping to a staggering 90 percent of managers questioned in the US.

A lack of vision at the top is not the only obstacle to change and progress, however. The report also showed that the inevitable cascade of regulatory change is expected to significantly hamper the industry, with 81 percent of respondents believing more regulation will remove opportunities for innovation going forward. There are also significant concerns regarding the cost impact of a new regulatory regime; 72 percent of participants feel that a regulatory clampdown will seriously increase costs for investment managers, and 63 percent think investment managers will not be able to pass on these associated costs to their clients.

"The investment management sector is braced for regulatory change, and is ready to learn its lessons from the financial crisis. More than ever, the 'time is now' for true engagement between the industry and the regulators to shape the future of the investment management landscape," said James Suglia, Global Head of Investment Management Advisory, KPMG LLP.

"Regulation has the potential to deliver a new lease on life through market stabilization, information sharing and product transparency, but only by taking a consultative approach can the correct results be achieved," he added.

Not everyone agrees on where the emphasis of the regulatory changes will fall. For example, 53 percent of institutional investors believe that risk management and internal controls will be more strictly regulated in the future, while investment managers feel the focus will be on leverage limitations (77 percent).

"Events of the past year have once again put the issue of trust into sharp relief, and it is fair to say that the credibility and reputation of the investment sector has been damaged. It is little wonder that investors, faced with the realities of plummeting stock markets and portfolios, have questioned the integrity of the investment management industry," Seymour concluded. "This research clearly shows that constituent parties in the investment chain are not communicating with each other to best effect. The industry should find ways to open these lines of communication once more, and by doing so, rebuild the trust of investors."

About the study

The report draws on the findings of a global survey of 288 senior executives in 29 countries across the global fund and investment management community. By geography, 30 percent of the sample was each based in North America, Western Europe and Asia Pacific, with the balance from the Middle East.

The research was undertaken by Datamonitor, commissioned by KPMG International, between February and March of 2009 and the respondents were investment managers, institutional investors (insurance companies, pension funds and sovereign wealth funds), and retail investors (wealth managers and family offices). In addition to the survey results, a number of in-depth interviews were also conducted by Datamonitor with senior executives from some of the most prominent investment managers and wealth managers in Western Europe, North America and Asia Pacific.

Respondents' answers were weighted according to the relative size of their organizations' assets under management. In total, the investment managers participating in the survey managed US$800 billion in assets, the pension funds US$227 billion, the insurance companies US$181 billion, wealth managers US$146 billion, sovereign wealth funds US$127 billion and family offices US$14 billion.

About KPMG LLP 

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International's member firms have 137,000 professionals, including more than 7,600 partners, in 144 countries.

    Contact:
Pete Settles
KPMG LLP
201-505-6065
psettles@kpmg.com
Website: http://www.us.kpmg.com