CFA Institute paper calls for ‘purpose-driven culture’ in investment industry

Added 31st October 2016

A new research paper is calling on the investment industry to shift from a performance-driven culture to one that is purpose-driven, to ensure better alignment of its interests with those of clients.

CFA Institute paper calls for ‘purpose-driven culture’ in investment industry

The study, called ‘Discovering Phi: Motivation as the Hidden Variable of Performance, was produced by the CFA Institute and the Center for Applied Research, the independent think-tank within State Street.

It identified ‘phi’ as the alignment of purpose, habit and incentives at the “intersection of the goals and values of the individual, the organisation and the client”.

The research asked three questions based on motivation theory to determine ‘phi’. These were: ‘what motivates you to perform generally and in your current role?’; ‘what is the reason that you are still working in the investment management industry?’; and ‘would you describe your work as a job, a career, or a calling?’

Survey respondents were asked to evaluate their organisation on a scale of 1-5 on 10-year organisational performance, client satisfaction and employee engagement.

Suzanne Duncan, global head of the Center for Applied Research, State Street, said: “When investment professionals are asked to deliver against inappropriate metrics on an inappropriate time horizon, their passion for markets eventually becomes divorced from their true purpose – achieving the long-term goals of the investors they serve.

While 53% said they were passionate about financial markets, they found a disconnect between passion and purpose, with only 28% saying they remained in the investment management industry for the purpose of helping clients achieving financial goals and only 5% to contribute to economic growth.

Duncan added: “Investment performance today isn’t only about alpha; it must focus on phi: a purpose-driven motivation that represents the greatest potential for performance, across market cycles.”

Arguing that with such a lack of alignment between purpose and passion, the entire investment management industry is flawed, according to Rebecca Fender, head of the Future of Finance initiative at the CFA Institute.

She said: “Phi is the variable that’s been missing for too long from the investment management ecosystem.

“Like any ecosystem, the investment management industry is predicated on a series of intertwined relationships. The research shows that when there’s a lack of purpose to temper passion, the balance and alignment of interests and motivations becomes distorted and ultimately the most fragile things in the environment bear the brunt of the harm.

“By focusing on phi, investment professionals won’t merely restore balance to our industry, they will make it easier for everything within our ecosystem to find new ways of flourishing, new ways of capturing alpha.”

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