Paul Smith to buy side: do you add value?

Paul Smith this week began work as president and CEO at Charlottesville, Virginia-based CFA Institute, administrator of the financial analyst qualification.

Smith says the industry has lost confidence and is at risk of losing customers’ trust, as evidenced in the shift away from active fund management to passive portfolios, from retail investors’ embrace of index funds and exchange-traded funds to institutions’ growing preference for ‘smart beta’ and other low-cost, quantitative products.

He wants to use the CFA platform to engage directly with major active fund-management companies to recognise and address the issue, which he argues is partly rooted in lapses of professionalism.

This builds on an agenda he pursued as Asia MD at CFA, to put ethics back in the cultural DNA of the finance industry. He readily acknowledges that, so far, has reaped no tangible improvements. But, he ripostes, the general public’s behaviour suggests asset managers aren’t providing enough value.

“It calls into question a wider issue around professionalism,” Smith said. “Are we as an industry demanding enough of ourselves?”

To date the CFA has chosen to push such agendas at the grassroots level, via its 127,000 members who passed Level 3 of the CFA exam. But  Smith wants the CFA to have a conversation more directly with the executives running asset-management companies.

“The CFA hasn’t engaged major employers enough. Do they recognise the industry has a problem? Are we actually good at our jobs? I feel like the fund management industry has ducked that issue,” despite the increasing loss of business to lower cost, passive investment providers.

“If we do add value, then let’s be more vocal about that,” Smith said. Since the financial crisis of 2008, the industry has lost confidence and been under attack (although not nearly as much as banking). It needs a more collective response, both to the public as well as within the industry. “We can use the CFA’s influence to get big investment management firms to talk about professionalism, standards of both ethics and competence, and make a coherent case to the public as to why it should use us, and pay us…Right now, empirically, we seem to be losing that argument.”

Smith has spent more than 18 years in Asia, and will continue to be based in Hong Kong. Last year the CFA Institute opened offices in China and India, reflecting the region’s position as the fastest growth market for analyst credentials. Today Asians account for 17% of CFA members, with around 22,000 charterholders, but a whopping 47% of CFA candidates.

Although he will begin to seek a replacement for the Asia MD role, for now Smith will keep the Asia remit, as the China and India offices are brand-new. He hopes to hand the region to a lieutenant in a year from now.

The CFA Institute’s headquarters and administration will remain in the US.

Smith, a UK native, was tapped for the CEO role given his global experience. He joined Bank of Bermuda in 1996 to start its Asian fund administration business in Hong Kong. Bank of Bermuda was acquired by HSBC and Smith became global head of its alternative administration arm, for a time based in New York. He has also served as chairman and CEO of Asia Alternative Asset Partners, aka Triple-A Partners.

He succeeds an interim president, Dwight Churchill, who took up the CEO role at the CFA Institute last year following the retirement of the long-serving John Rogers.