This column is part of Globe Careers' Leadership Lab series, where executives and experts share their views and advice about leadership and management. Follow us at @Globe_Careers. Find all Leadership Lab stories at tgam.ca/leadershiplab.
Few would describe investment management professionals as unmotivated individuals. The majority of those who last in the industry have an undeniable passion for financial markets.
However, research by the Center for Applied Research (CAR), the independent think-tank of State Street Corporation, and CFA Institute has found that this passion has become divorced from the true purpose of the investment management profession: achieving the long-term goals of the investors they serve.
"Discovering Phi: Motivation as the Hidden Variable of Performance," argues the investment industry and its professionals need to undertake a cultural-shift away from the short-term performance-driven culture that currently dominates to one that is purpose-driven. To do that, professional and individual investors must identify purpose and align it with values; learn new habits; and develop new incentives.
What is Phi?
Phi is the "hidden variable of performance" that explains the motivations behind decision-making and what can drive successful long-term returns. Phi consists of three factors of motivation: purpose, habits, and incentives. All three govern the behaviors and actions of investment firms, investment professionals, and individual investors.
According to the study, when investment professionals have a high degree of phi, their personal goals and values are aligned not just with their firm or organization but also with their clients.
Phi delivers competitive advantage
The research found that phi has a statistically significant and positive link to broad performance measures that can sustain the industry and drive client satisfaction for decades to come.
A one point increase in phi is associated with 28 per cent greater odds of excellent organizational performance, 55 per cent greater odds of excellent client satisfaction and 57 per cent greater odds of excellent employee engagement.
According to Suzanne Duncan, global head of the Center for Applied Research for State Street, "building a culture and environment with aligned purpose, habits and incentives can give organizations a competitive advantage that is sustainable and will benefit clients, the providers themselves and ultimately society as a whole."
Developing Phi: The Importance of Leadership
While 53 per cent of the investment professional respondents said they pursued a career in investment management because they are passionate about financial markets, just 28 per cent said they remain in the investment management industry for the purpose of helping clients achieve their financial goals. In fact, the report found that only 17 per cent of respondents scored high in phi, while 53 per cent scored either low in phi or had no phi at all.
In order to bring about a greater degree of phi in the investment industry, the overarching culture of an organization and the industry as a whole needs to shift. To do so, requires significant will and leadership from those at the top. When asked about leadership, the report found:
- Only 44 per cent of professional investors believe their leaders articulate a compelling vision.
- 41 per cent agree that leaders talk to employees about their most important values and beliefs.
- 40 per cent of professional investors think their leaders re-examine critical assumptions and beliefs o 3 per cent believe that leaders are spending time teaching and coaching employees.
With such a lack of articulated and shared purpose from leadership, how then can organizations bring about a higher degree of phi?
The report recommended that investment firms develop new incentive structures, ones that detract from short-term gains and emphasize long-term results. Thirty-nine per cent of investment respondents were supportive of such ideas stating that they would be "pleased" to have a performance bonus on a two– or five-year cycle rather than the standard annual bonus.
Along these lines, leadership within the investment management sector needs to clearly articulate a vision or approach which emphasizes the value of purpose and long-term planning rather than short-term performance, which currently permeates the industry.
Purpose is a complex subject. Long-term incentives are a start. And addressing the complexity of human motivations, which are far from uniform, is not a straightforward task. But complex problems are well-known to the financial industry and those firms which turn their analytical skills towards helping their people thrive are likely to establish competitive advantage.
The right type of motivation
What this research suggests then is not that investment professionals lack motivation, but the type of motivation they have needs to be recalibrated. I see this every day in my practice.
We can only get there by fundamentally changing our model for motivation, by dedicating time, money, and energy toward aligning our organizational and industry activities to promote purpose.
Alison Crosthwait, CFA, is a psychotherapist who counsels financial professionals.