Wall Street: “Bloodsuckers” Unite
“If you see something, say something.” That has become the mantra of security organizations worldwide, drawing millions of additional eyes and ears into the struggle to keep the world safe. The same should apply to the financial services industry. Here are some relevant examples.
In a recent speech to a slew of the nation’s largest investors, investment guru Jeremy Grantham of GMO called out the industry. He’s done it before, so no surprise there, but the language was more colorful this time, referring to many in the investment profession as hopelessly unproductive in the sense of creating anything of value or benefitting anyone other than themselves. He referred to the industry, by and large, as a horde of “bloodsuckers” on the U.S. economy.
I marvel at how clear, concise, and to the point he can be while many of us have only poked around the edges with more tepid commentary. It is a harsh assessment, to be sure, and in Jeremy’s case — I would add Vanguard founder Jack Bogle to the same case file — many will dismiss this type of industry introspection as grandstanding by geezers. “Easy for them to say,” the junior money-manager corps may lament, “those two already got their millions.” Nonetheless, they see something and they say something.
In another recent article, Satyajit Das, an industry expert and author of Extreme Money, sees the case for a financial industry facing a rapid decline in socially redeeming value. We create exotic instruments that we trade along with other pieces of paper representing financial interests — all in the chase for vast sums of personal wealth. And, hopefully, the client gets something along the way.
In our defense, the industry generally pays plenty of taxes, but do we create jobs, widgets, new technology, groundbreaking science, or do we just bet on those who do? Says Das, “… as everyone was making lots of money doing this stuff [i.e. packaging up simple instruments like mortgages into complex, leveraged tradable securities] it was hardly in anyone’s interest to stand up and point out the reality of what modern finance had become.” Das and others see something and they say something.
In a recent event sponsored by CFA Institute in Los Angeles, the question of the value created by this industry was raised. The ranks of investors and consumers worldwide who fork over their modest savings for investment, insurance, home loans, and retirement, to name but a few services, are growing exponentially. And financial middlemen extract an ever-increasing toll for the privilege. It was agreed that this toll, and its collectors, have never looked more suspect in terms of the benefits delivered.
The discussion closed with the panel listing four things for the industry to focus on in order to provide value and restore trust. A unanimous suggestion was to get control of industry compensation practices. In other words, “pay for performance,” not just pay for accumulating more and more assets under management. Other recommendations included making sure we have client-focused compliance and professional standards and that enforcement is rigorous, resulting in serious consequences when we break the rules.
Finally, and perhaps most important for all of us practitioners dedicated to the ethics and integrity in this profession, publicly pronounce your private commitment to making this industry more honest and trusted. If you see something in your firm or in our profession that is not right, say something. If we are going to unite around something, that is a far nobler cause.
Until next time, see the CFA Institute Asset Manager Code of Professional Conduct for more ideas on ethical practice and keeping investor protection and the professional conduct of managers as top priorities.
What do you think — do you agree with Grantham and Das’ ominous assessments of the industry?