The Missing Link to the Best Performance of Investment Managers

The culture of an investment manager organization can have a strong impact on putting plan sponsor and adviser interests first, research suggests.

By Rebecca Moore | November 29, 2016
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New research by the Center for Applied Research, the independent think-tank of State Street, and CFA Institute, argues that to succeed, the investment industry and its professionals need to move from a performance-driven culture to one that is purpose-driven to better ensure clients’ long-term goals are met.

The research, titled “Discovering Phi: Motivation as the Hidden Variable of Performance,” has identified “phi”, a factor that has a positive impact on organizational performance, client satisfaction, and employee engagement. Phi is the alignment of purpose, habit and incentives at the intersection of the goals and values of the individual, the organization, and the client. The research asked three questions based on motivation theory (self-determination theory) to diagnose phi: 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? Would you describe your work as a job, a career, or a calling?

The research found that phi has a statistically significant and positive link to broad performance measures, including client satisfaction and employee engagement, that can sustain the industry and drive client satisfaction for decades to come. A one point increase in phi is associated with 28% greater odds of excellent organizational performance, 55% greater odds of excellent client satisfaction and 57% greater odds of excellent employee engagement.

Rebecca Fender, CFA, head of CFA Institute's Future of Finance initiative, who is based in Charlottesville, Virginia, and is a co-contributor to the report, tells PLANSPONSOR, the analysis did not get into the specifics of how phi in an organization affects performance of investments offered to clients because of how complicated that would be. “But, long-term organizational performance [of investment managers] client satisfaction and employee engagement are important,” she says. “The latter item is important because of turnover of investment management employees who make important judgements. It is important to have consistency, and CFA interviews with investors found consistency in investment management organizations is important to them.”

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