NICSA members closed out NICSA’s 2018 General Membership Meeting with an intellectually honest discussion about the challenges and realities of diversity and inclusion within the industry. Dan Houlihan, Executive Vice President, Head of Global Fund Services, North America, Northern Trust, moderated the panel, which included forward-thinking representatives from Confluence, Fidelity, and Northern Trust.
Houlihan began with an overview of the NICSA-sponsored Diversity Project an initiative launched on October 2nd that is focused on accelerating progress toward an inclusive culture within the asset management industry in North America.
“We have 14 founding member firms who are coming together with a two-pronged approach [to address the issue that] this industry is predominately run by white males,” Houlihan said.
Precisely how to fix that problem was the topic of the day’s discussion.Amy Philbrook, Head of Diversity & Inclusion at Fidelity, said the issue boils down to attracting, retaining, and developing talent — and companies that want to have higher returns for their businesses have to astute in doing just that.
Connie Lindsey, Executive Vice President – Head of CSR and Global Diversity & Inclusion, Northern Trust, said that the business case has been proven but hasn’t moved the industry to action. Gary Casagrande, Vice President, Global Market Strategy, Confluence, said non-minorities must learn to live in discomfort in order to see an improvement.
“We have to, as an industry, not just embrace this as a numbers game, but allow ourselves to feel uncomfortable and not let that discomfort immediately jump to self-judgement,” Casagrande said. “What often happens is when we move from discomfort into self-judgement, we recoil and say ‘I went to that one-hour panel and checked that box, now it’s time for me to move on.’”
Philbrook clarified the nomenclature surrounding the issue. “Diversity is the mix; inclusion is what you do with it,” she said. “Another way of saying that is diversity is you inviting me to the dance; inclusion is asking to dance. Diversity and inclusion can exist, but without equity, they cannot be effectively actuated.”
Houlihan said customers are relying on financial planners for increasingly broad purposes. “We’re in a beautiful point in time to rebrand what it means to be part of this industry,” he said. “This has become a digital business, and the role of a human in a digital business is to be as human as humanly possible. It’s about helping customers align their wealth strategy with their life purpose, and that’s a career that’s appealing to a really broad set of people.”
Now is the time to #JoinTheMovement – please contact NICSA at [email protected] if your company is interested in joining the Diversity Project.
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We’ve all seen the headlines touting blockchain’s industry-disrupting capabilities, but what the asset management industry really needs is a firm understanding of the technology’s practical uses.
Experts from Foreside and Citisoft broke through the hype late last month with the latest edition of Nicsa’s webinar-based “Reality Behind Buzzwords Series,” which clearly defined blockchain, its use in cryptocurrency, and the implications it will have on the industry.
Blockchain, at its core, is a series of immutable records, or blocks, bound together through cryptography and managed by a decentralized group of computers. Gabriel Edelman, Managing Director at Foreside, focused on the digital assets universe within the blockchain investment product landscape, which he divided into three categories: cryptocurrency, initial coin offerings (ICOs), and stablecoins.
“The cryptocurrency everyone’s most familiar with is, of course, Bitcoin,” he said. “Then, there are a variety of ICOs; I’m personally fascinated by countries that are creating their own cryptocurrency, giving access to locals as well as making foreign investments in unique ways. In the last basket, we have stablecoins, or tokens that are pegged to a fiat currency, an asset like gold, or even controlled via an algorithm.”
The Paxos Standard Token (PAX), for example, represents a legal title to a physical bar of gold, “So you’re seeing sort of the digitization of physical things that can be created and then used in financial products,” Edelman said.
Looking at the big picture, Edelman said due diligence in the world of digital assets requires knowing the product in terms of strategy, asset type, and target audience; determining the asset manager’s financial and technical experience; and considering disclosures in regards to fees, the changing regulatory landscape, industry concerns, and the unique nature of digital assets.
OPPORTUNITIES AND CHALLENGES
Ben Keeler, Managing Director at Citisoft, broke down the realistic opportunities and challenges that blockchain will bring to the asset management industry.
“There’s certainly opportunity where there is shared truth, specific examples being collateral, repo netting, and really all forms of tri-party reconciliation,” Keeler said. “You can make the argument that distributed ledger technology is a powerful tool to support any case where multiple counterparties are working off of the same sheet.”
Specifically, Keeler said multinational conglomerates with a lot of moving parts are finding private ledgers useful in supporting internal reporting. In addition, the technology could streamline regulatory reporting and, in the long-term, cause fundamental shifts in how the industry approaches custody services.
From a challenges perspective, Keeler said blockchain is difficult to scale due to limits on the amount of transactions networks can process.
“Exception processing becomes a big issue that needs to be ironed out further,” he said. “Blockchain almost instantaneously publishes records that have been technologically validated to include as part of the chain.”
“But within financial services, the need to correct your work based on new information or updates that come in after a transaction was booked is adding some new wrinkles to distributed ledger technology,” he said.
Some also question whether using blockchain to support day-to-day transactions in the financial services industry is an all-or-nothing proposition. “This is not a ‘get on the train, or you’ll be left behind’ type situation,” Keeler said. “Could it be at some point? Sure. But the value of the tools, to date, have been limited by the question of whether it can be done at scale.”
In the long-term, Edelman said there are several intricacies to consider. Regulation in the blockchain space, for example, is a fragmented area both globally and domestically. Questions also remain around security, lack of standardization, computing power, and how the technology would work with AML regulations.
“These are all long-term intricacies that are being tackled,” Edelman said. “It’s an ongoing process, but there’s a lot of promise in terms of what’s being developed.”
Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the Nicsa panel, they do not necessarily reflect the views of Nicsa or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.
In June, NICSA hosted a well-attended panel on ESG in New York. This event covered a great deal of ground, and in Part 1 of this three-part series, we discussed how the panelists described learning about ESG as being akin to “Learning a New Language.”
Rosetta Stone secured, the audience was then treated to discussion on where the ESG space is headed, particularly with regard to the institutional community.
When it comes to ESG: “Investors want consistency in scoring and data,” said Todd Scorzafava, Partner in Charge of Wealth Management, Eagle Rock. “The marketplace understands that ESG is not a niche and that this is a conversation they should all be having, but that lack of consistency comes up as an issue again and again.”
Mark Hays, Vice President – Sustainable Investing with J.P. Morgan Asset Management, agreed, and added, “Institutional investors are focused first and foremost on hitting their financial goals. They’re clearly thinking about ESG, but they’re thinking about it through the lens of how it can help them meet the needs of their constituents and achieve their long-term financial objectives.”
But beyond merely thinking about ESG, how are institutions actually implementing ESG-focused approaches?
According to Hays, when it comes to implementation, at least in the institutional community, the preferred method is often bespoke rather than “off the shelf.” “There is still a lot of skepticism around ESG ‘products’ in the institutional community,” he added.
Hays continued, “One size fits all doesn’t always work for this universe of investors – you need to be able as an Asset Manager to design solutions that are tailored to specific needs.
John Farley, Vice President – Responsible Investment Strategy, Calvert Research & Management, added, “There is a tremendous need for education right now. You have some of the endowments and foundations who are really far along in their ESG journey; you have others who might be starting to carve out some allocations, perhaps as an experiment. For institutional investors, adopting ESG is a very complicated issue. You have to define what your goals are, you have to define the performance metrics, you have to make sure all the stakeholders are on the same page, work on internal communications.”
That internal communications focus was one that other panelists echoed.
“You have to move away from just talking with an audience that’s already involved in ESG efforts,” said Hays.
This is part 2 of a 3-part series of posts from this latest NICSA ESG event.
Part 1: Like learning a new language
Part 3: The intersection of ESG, Big Data and Artificial Intelligence
Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the NICSA panel, they do not necessarily reflect the views of NICSA or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.
It’s been more than half a year since the Markets in Financial Instruments Directive (MiFID II) came into effect, and in that time, the legislation has fundamentally reshaped the financial landscape for EU firms, as well as non-EU firms that distribute products via affected intermediaries.
“MiFID II has brought enormous complexity to asset managers in terms of generating and processing data,” Alex Dorfmann, senior product manager at SIX, said to NICSA members during a recent #WebinarWednesday. “Increasing investor protection and transparency will remain a key focus for fund companies distributing product globally.”
Dorfmann moderated the discussion, which provided up-to-date information on the regulation, an assessment of how the industry is securing compliance with the new directive and practical advice on effectively processing financial data.
When it comes to compliance readiness, panelist Nicolas Deldime, Partner, Arendt Regulatory & Consulting, said countries are progressing at different speeds. “Investment service markets are not developed to the same extent from one country to another, and this is making a big difference in terms of appetite for compliance with MidFID II,” Deldime said, adding that variations in firm size and regulator maturity have created additional disparity.
Looking ahead, some are waiting for regulatory guidance in areas of uncertainty. Raoul Heinen, Managing Associate at Linklaters, Luxembourg, said third-country access is a hot topic in light of Brexit — especially from the perspective of the Luxembourg market, which heavily relies on delegation and outsourcing to third countries.
“The Luxembourg legislator, which is known for implementing EU directives without any major gold-plating, has made use of the option offered by MidFID II to require third-country firms to establish a Luxembourg branch to provide investment services in Luxembourg to retail and other professional clients despite criticism by the industry during the implementation process,” Heinen said. “The new requirements shed doubts on whether the way third-country firms have been servicing Luxembourg clients in the past — essentially by providing services cross border without any physical presence in Luxembourg — can be maintained going forward.”
A leaked proposal by the French delegation at the Council of the European Union seeking to scrap the third-country equivalence regime further complicates the issue. “Under the proposal, every third-country firm would have to establish a branch in the EU to provide services, regardless of whether the services are provided to retail professional clients or ECPs,” Heinen said. “The proposal also seeks to apply subset of MidFID II rules to the branch and place it under the supervision of ESMA.”
Dorfmann said other changes may be more difficult to predict, such as the potential extension of MiDFID II to UCITS management companies and AIFMS. In addition, he said “current global political developments, including the emergence of a new protectionist tendency and the difficulty of balancing investor protection while remaining competitive with the rest of the world,” will affect future regulatory decisions.
Paul Ellis, Global Head of Regulatory Product Development, HSBC Securities Services, discussed challenges and solutions around data generation, collection, and processing in a post-financial crisis regulatory environment.
“Most firms are looking to structure their data models in such a way that it becomes much more strategic and cost effective to manage that data to meet the demands of multiple regulations,” Ellis said. “That sets up the foundation for everything. If you’ve got the data right, then you can use all the new technologies that have come into play.”
Ellis said that once regulated firms get their data models into good shape, technologies like robotic processing and artificial intelligence can ease compliance burdens. “Obviously, the data layer is a critical starting point, but I don’t think it should stop firms from thinking about how they can improve the operating model over and above that,” he said.
NICSA thanks ALFI for sponsoring this webinar.
Frontline industry executives from 1251 Capital Group, Amundi Pioneer Asset Management USA, Capital Group, Easton Vance, and PwC gathered during Nicsa's 2019 General Membership Meeting in Boston to share insights on how to stay relevant and bolster client value.
John Stadtler, Partner, US Financial Services Industry Group at PwC, moderated the event, which focused on how executive teams across the asset management differentiate themselves, particularly in the areas of technology, sustainable investing, and diversity & inclusion (D&I).
TECHNOLOGY
Lisa Jones, Head of the Americas, President & CEO at Amundi Pioneer Asset Management USA, said technology drives efficiencies in many areas of her business. Because Amundi’s front, middle, and back-office platform is in-house, rather than outsourced, the company can customize its own system with ease. “It allows us to move more quickly in terms of development,” she said.
As one of the 10 largest asset management firms in the world with a footprint across 37 different countries, Amundi also the advantage of a global perspective. “The banking robo-advice model is quite interesting in Asia and Europe, and there are things that I hope we in the U.S. can learn from that to help and wholesalers,” Jones said.
Tom Faust, Chairman and Chief Executive Officer at Eaton Vance, said that in addition to ongoing investment in a large-scale managed account platform, his firm is focused on leveraging the power of big data.
“There is an enormous amount of new data, mostly driven by the advent of smartphones, drones, and other technologies,” he said. “We’re in the very early stages of figuring out how to harness that direct data to drive alpha.”
John Hailer, President - Asset Management at 1251 Capital Group, agreed that harnessing the data is the industry’s biggest challenge. “The market's getting more and more efficient gathering data, selling data —but then what do you do with that data once you have it?,” he said. “To me, that’s a key factor in whether or not you are successful.”
DIVERSITY AND INCLUSION
Hailer said D&I efforts help firms mirror the society they serve and ensure long-term business sustainability. His firm aims to achieve diversity by removing age-old barriers to entry.
“It’s creating different situations that allow people to participate in a network they’ve previously been isolated from — not necessarily deliberately, but isolated because of the way the ecosystem was built,” Hailer said. “Unless you get enough people in thinking differently from you, you’re going to be limited to only thinking one way.”
Jones agreed that diversity and inclusion efforts are vital in acquiring the talent needed to deliver the best possible results for clients.
“I think we all have embarked on launching D&I programs because it’s so important to focus on race and gender,” she said. “What many of us have enjoyed about growing up in the asset management industry is really being exposed to that intelligent debate that you get when you have diversity of thought.”
SUSTAINABLE INVESTING
Jones said D&I efforts dovetail into environmental, social, and corporate governance (ESG) factors, which also pave the way for long-term performance advantages.
“The intersection of ESG, culture, diversity, and inclusion is a quite exciting part of my job,” she said. “You can't assess and evaluate a company based upon social issues such as pay equity, professional development, and respectful work environments the same way on a global basis because some of those criteria are quite different.”
Faust said the fastest-growing part of his firm is its individual separate accounts, which are structured to provide a level of customization in terms of ESG characteristics. “These are driven by the preferences expressed by the end investor,” he said.
Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the NICSA panel, they do not necessarily reflect the views of NICSA or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.
#GeneralIndustryTrends
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NICSA will once again partner with ALFI for the Association of the Luxembourg Fund Industry’s Global Distribution Conference from September 25-26 , where 650+ senior representatives from the global distribution community will convene to learn about the latest developments on the global distribution landscape.
The conference will reflect on 30 years of UCITS, explore the future of enhanced cross border distribution, and take a deeper dive into distribution trends in LatAM and Asia, product trends around the globe, and the technology that is making distribution easier and more efficient.
While at the event, I’m eager to hear from the 50+ speakers and to network with the fund distributors responsbile for the global reach of investment funds. I am also looking forward to sharing the ALFI stage with Sally Wong, CEO of the Hong Kong Investment Funds Association (HKIFA), to provide important perspectives regarding our respective markets as they relate to the global distribution ecosystem.
Fee compression and shrinking shelf space are on the watch list for global asset managers facing an increasingly competitive environment. Data-inspired distribution models and strategic alignment of intermediary partnerships significantly contribute to the future vision of global financial product distribution. All the while, technology-inspired service models designed for the digital era are taking center stage. A global view of these matters is critical to growth for innovative industry leaders. I look forward to sharing NICSA’s views with conference attendees.
NICSA has enjoyed a long and successful partnership with ALFI and its members. Events such as ALFI’s Global Distribution Conference are critical to serving the global asset management community as it meets the challenges posed by increasing globalization. Collaborating on innovative approaches to global distribution is certainly in line with the NICSA mission. Serving the distribution community within the global asset management industry has been a focus for NICSA in recent months, and will continue into 2019. Our organizaton recently formed two new working committees: a Product & Distribution Committee and a Data Analytics Committee. We look forward to sharing the good works of these important groups with our own membership and the ALFI community in the coming months.
#Nicsa Updates
Join us in Florida from April 3rd to 5th to address the industry’s most important issues head on. Let NICSA help solidify your 2019 business planning. Hear from all perspectives—asset management firms, broker dealers, and an extensive group of firms that include technology, law, and service firms that support the industry. We’ve got a line-up of 40+ expert speakers and 12+ hours of educational content.
Here are a few conference highlights:
Jim Fitzpatrick, President of NICSA weighed in on the mission ahead: “the Strategic Leadership Forum continues to expand its reach to provide relevant information to all segments of the NICSA membership. We are pleased to work with a talented group of industry executives, headed by committee co-chairs Larry Fahey, Vice President and Director of Corporate Operations at Eaton Vance and Lynette Turner, Managing Director at BNY Mellon Asset Servicing, to develop valuable content for our membership. I encourage all industry participants to join us in April to actively engage in the development of best practices within the industry we serve.”
NICSA is committed to bringing together today’s top thought leaders within the asset management industry to create an optimal opportunity for collaboration, networking and idea sharing.
It’s been a decade since the global financial crisis, and the industry remains in the midst of a changing regulatory environment. NICSA members heard a panel of experts discuss the future of these regulations during NICSA’s 2018 Strategic Leadership Forum. The panel, moderated by Don Andrews, Partner & Global Practice Leader for Risk and Compliance at Reed Smith, featured leaders from the U.S. Securities and Exchange Commission, SIFMA and Hughes Hubbard & Reed LLP.
“There’s been a change in administration, there’s been a change in focus and there’s a lot of talk about doing away with regulations,” Andrews said, addressing Sarah ten Siethoff, Deputy Associate Director at the SEC. “From your vantage point, is there any change in approach at the SEC?”
“A lot of the SEC’s day-to-day work doesn’t really change from chairman to chairman or administration,” ten Siethoff said, not representing the view of the SEC but rather her own personal experience. “If you look at our compliance and inspection division’s 2018 exam priorities, if you go through them and compare them to the last couple of years, you’ll see there’s really a lot of continuity there.”
Topics like retail investor fraud, senior investors and cybersecurity are essentially timeless. “People often tend to focus on particular points where there is a change, but really what we see a lot of is continuity,” she said.
Will Leahey, Vice President & Assistant General Counsel at SIFMA, discussed his organization’s concerns going into 2018 and beyond. “We’re really focused on how coordination between the SEC and the DOL is going to shake out,” he said. “There’s some focus on whether those two regulatory agencies can cooperate in a way that gives consistency for the underlying customers and investors.”
Panelist Roel Campos, Partner at Hughes Hubbard & Reed LLP, previously served as Commissioner SEC. He was sworn in on August 22, 2002, and served under three different chairs until 2017. “[SEC Chairman] Jay Clayton stating that his concern is retail investors is really kind of phenomenal,” Campos said. “His very clear, stake-in-the-ground, ‘I don’t want scandals, I don’t want problems,’ is really a major statement.”
Protecting Our Seniors
Andrews asked the panel what specifically is being done to protect retail investors, including seniors.
“The flavors of fraud change over time,” ten Siethoff said. “You might see some change in the particular way that people are trying to take someone’s money, but there’s always someone out there, unfortunately, who’s trying. Focusing on fees and expenses, that people are being properly charged what they’re told their charged, that people [are] aware of what they’re getting into — that’s a very bread-and-butter issue and something that our examiners are constantly looking at.”
Leahey said financial advisors are on the front line of identifying cognitive decline in clients. “SIFMA has had a deep focus on this with the close collaboration of the SEC, particularly FINRA and the state regulators, which recently provided flexibility to stop money transfers if they’re concerned about a senior experiencing cognitive decline or unwittingly participating in fraud by one of the people who has control over them,” he said.
The Rise of Cryptocurrency
The panelists also discussed investor protection in the context of cryptocurrency. “There’s a division to be drawn between Tier 1 cryptocurrencies – like Bitcoin, Ethereum and Ripple – and initial coin offerings, which appear a lot like securities and are based upon the technology of more popular crypto assets,” Leahey said. “But there’s no way to fit these currently into the custody environment.”
Campos said cryptocurrency is just one of many applications of blockchain. “All of this begins with blockchain, which are distributed ledgers,” he said. “It might be a disruptive and transformative technology, and some think it will be more impactful than the invention of the Internet.”
The beauty of blockchain is that it’s immutable and transparent, Campos said. “Anyone with the right program can look and see the historical chain of blocks and what the transactions are — therefore, it’s self-regulating,” he said. “The challenge is for the regulators to nurture a new technology, which could be game-changing, and at the same time keep scam artists from running amuck and hurting investors.”
Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the NICSA event panel, they do not necessarily reflect the views of NICSA or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.
Asset managers gained valuable insight on how to capture advisors’ attention and leave a lasting impression during a recent #WebinarWednesday presentation on the topic.
Meredith Lloyd Rice, Vice President at Cogent Reports, Market Strategies International, moderated the session. “I’ll be sharing highlights from two of our syndicated research products: our Advisor Brandscape® and our Advisor Touchpoints® reports,” she said. “This way, attendees can gain an understanding of not only the challenges faced by asset manager today, but also opportunities to engage with advisors.”
Data from both reports were derived from 2018 surveys of registered advisors. From a broad perspective, Rice said advisors have shifted further toward increased reliance on fee-based compensation, and RIAs continue to make up the vast majority of that compensation through asset-based fees.
The research pointed to consolidation in terms of the number of relationships advisors are maintaining with mutual fund providers, underscoring the importance of building an optimal communication strategy.
“Advisors receive a lot of information from financial services providers,” Rice said. “When we asked advisors to think about the communications they receive in a typical month, they report an average of 96 touches across all financial services providers, with emails representing over half of those communications.”
While email remains advisors’ No. 1 preferred communication method, webinars and social media are gaining traction in terms of overall importance.
“Another thing we want to point out is that advisor preferences vary based on distribution channel, meaning that providers can better target advisor engagement and outreach efforts by aligning their communications to the unique preferences of each channel,” Rice said.
For example, the survey results indicated that RIAs are among the most digitally-savvy producers and thus likely to respond well to webinars and other digital forms of communication, while producers in national and regional channels are more likely to prefer external wholesaler visits. That said, Rice noted that wholesaler interactions were shown to spark the greatest life in brand consideration.
Overall, survey results indicated that successful wholesalers often make an effort provide content that is customized to advisors’ unique business needs. “We see the best wholesalers are described as being consultative, sharing value-add and best practices, and they’re striving to recommend investments that complement advisors’ current books of business,” Rice said.
“In order to attract RIA interest, firms should seek to strengthen engagement,” Rice said. Asset managers identified as drawing the most RIA interest have very strong digital engagement platforms.
NICSA thanks Cogent Wealth Reports for sponsoring this webinar.
Industry powerhouse Carla Harris, Managing Director and Senior Client Advisor at Morgan Stanley, shared “hard earned and hard learned” pearls of wisdom from her 32-year career on Wall Street during NICSA’s Strategic Leadership Forum this month.
“I dare say that I’ve learned a few things about not only surviving, but more importantly, thriving, in the seat that you sit in or the seat that you aspire to sit in,” Harris said. “And frankly, that’s what the pearls are all about.”
Harris shared three main pieces of advice with the audience:
“Pick three adjectives that you would like people to use to describe you when you’re not in the room that are absolutely consistent with who you really are — however, pick three adjectives that are also valued in your organization,” Harris said. “Then, you must have consistent behavior around those three adjectives, and you must use this language in your environment, particularly when you are talking about yourself.”
Harris said the most valuable currency is that of relationships, which never experience diminishing marginal returns. “At a minimum, you must have a relationship with every seat that touches your seat,” she said. “If the only person that knows you’re doing a great job is your boss, then your ability to ascend is going to be vulnerable. It’s your job to make sure as many people as possible in the organization is aware of your outsized contribution.”
Harris also provided her perspective on diversity and inclusion within the industry.
“I find it interesting that 30 years into this conversation around diversity and now diversity and inclusion, I still hear people say it’s the right thing to do and with all due respect, what’s most important is that it’s the commercial thing to do,” she said.
“You must start with a lot of different people in the room to get to that one idea that will allow you to innovate and capture and retain a leadership position in your industry — that is the business case around diversity.”
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