The findings from the Paradise Papers shine a light on the financial affairs of some of the world’s biggest businesses and most prominent political figures. The revelations show that even Paradise can bring its nightmares, and this is certainly one. The leaks, have been at best, an embarrassment to some exposed to the public glare. However the importance here is the lesson the fund management sector can heed from this public relations disaster.
Central to this is the fact the public, the core stakeholders for many of the personalities involved in the big reveal, dislike being taken for fools. A lot of the personalities exposed in the leaks are public figures where the maintenance of good reputations and public profiles are necessary. This will be somewhat of a blow to their reputations. The numbers scrambling to defend themselves in the press don’t show any sign of abating anytime soon.
However, what the public, and the publications reporting the story appear to agree on, is the fact that this is not illegal. Therefore, taking away the illegality of the act, any forthcoming backlash may well stem from the secrecy of it all.
Likewise, stakeholders (increasingly wholesale/retail) in the investment community do not like being taken for fools either, or having their trust misplaced. There is the saying that trust is hard earned, but quickly lost, and the experiences of many fund managers over the past decade exemplify this. The unexpected fund blow-ups, malpractice and lack of transparency exposed since the 2007-08 financial crisis have left some big industry players wondering how they can recoup the high standing they once had among investors and intermediaries, which had taken years to build.
A Financial Times study looking into the image of fund managers among financial advisers sought to find out what the most important attributes are for a strong reputation, and how to achieve them. It found that the key to a strong reputation among intermediaries is trustworthiness. This attribute is rated far higher than any other when advisers were asked which was most important to them when choosing an asset manager.
But while trustworthiness is a fine ideal, it is also intangible and difficult to measure. So the FT researchers went further, asking the advisers to rank the top five actions that managers could take to improve trustworthiness. Three tangible attributes emerged above all else:
- Consistent returns
- Clear and consistent investment process
- And increased transparency
Asset managers that value client service and communication highly will be much more likely to keep stakeholders abreast of developments at the fund – good or bad. The FT research shows that while intermediaries view performance as a key measure of a providers’ reputation, they will forgive underperformance if it is not unexpected and the asset manager has been open and transparent. Communications on this level is no easy feat. The sophistication of communication channels available to us, and the pseudo-tech way we live today means fund managers will have to sharpen their content, and the platforms they are utilising to keep all stakeholders in the loop. This area is no longer an add-on, it is fast becoming the most important part of a fund managers’ job.
Investors, and other stakeholders want communication during good periods and especially if there are unfavourable issues that emerge. Trust is not, therefore, the intangible attribute it first appears. It is possible to build this up among investors and advisers, but only through consistent, expected returns and a commitment to client services and communication, particularly for those fund companies that are often quite far removed from the end investor.
Hindsight will be on the lips of the high profile Paradise Paper protagonists, but hindsight is something brands in the asset management can ill afford. The lesson to be learned is consistency and transparency is something that builds trust. Shocks like the Paradise Papers revelation will seldom become crises if a fund manager’s investor base is already in the know.
This is the new panacea for asset management success. Honesty, transparency, lack of small print, and clarity of voice. Being visible is the key, and being open to stakeholders, at all levels – on the issues that matter to them. Managers who shy away from these demands will only lose out. Without a clear proposition, and regular, transparent communications with your audience, how can you expect to keep clients, particularly in times of shock?