Asset Management Industry Faces Challenges in 2013 (Video)

“Asset management companies are in a terrible position at the moment,” Paul H. Smith, CFA, managing director, Asia Pacific, at CFA Institute, said in a recent interview with Asia Asset Management. “They’re squeezed on the income side, and they’re squeezed on the cost side. So, both of those factors, I think, are going to make for a very, very tough operating environment in 2013.”

Smith expects a continued push for greater regulation worldwide, and as a result, firms are likely to see additional regulatory and compliance costs. Nevertheless, Smith also identified the restoration of investor confidence as a priority. While he does not believe that such high-profile cases as the Madoff scandal are indicative of the industry in general, investment professionals must accept that “the lack of ethics and lack of responsible behavior is much more widespread than we would like, and the net effect of that is that the contract between ourselves as business people and our clients is broken. There’s no point in trying to hide our heads in the sand and pretend that it’s otherwise.”

Restoration of the public’s trust, according to Smith, may take more than a decade to achieve. “We need to buckle our seat belts up and be prepared for a long and bumpy ride — which is why we need to know where we’re traveling, because we are going to get blown off course if we don’t have a very specific idea of what we’re trying to accomplish,” he said. “I think better educated investors, better educated investment professionals, putting the client first, putting ethics back at the top of the agenda, having businesses that are really driven and motivated by putting their clients first is the way to go — but all of that is a multiyear program.”

During the interview, Smith canvassed a number of issues affecting asset managers, in Asia specifically and global markets in general:

• Current state of play (0:11)
• Investor confidence (1:33)
• Cost issues (2:10)
• Regulation (3:05)
• Role of CFA Institute in Asia (3:35)
• Regional differences (4:30)
• Financial scandals (5:14)
• Short-termism (7:08)
• Client education (8:29)
• Outsourcing (9:00)
• Altering mindsets (9:55)
• Asset management in Asia (11:08)
• Consolidation (12:28)
• Fund passportability (14:36)
• CFA Institute membership (15:52)
• Comparisons (16:54)
• The upcoming CFA Institute Annual Conference in Singapore (17:56)

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