It has become accepted wisdom that the Great Financial Crisis of 2008 led to a profound breakdown in trust in financial services, which – ten years on – has proved hard to bring back. Much has been said about the damage caused by a few bad apples, for which we are all paying the reputational price.

However, we may be overstating the degree to which trust existed in the years before the crisis, and understating the extent to which the industry needs to look beyond conduct and behaviours to re-establish the lasting trust of policy makers and the public at large.

I would like to consider:

•the importance of trust in a market economy;

•what Brexit tells us about breakdowns in trust;

•the role of diversity and inclusion in rebuilding trust;

•the need to promote financial literacy;

•why tackling fees has to be on the menu; and

•what we should be doing to deliver sustainable value to clients.

The importance of trust in a market economy

In today’s advanced, complex and global economies, the degree of trust required to operate efficiently is extraordinary:

•governments rely on us to fund infrastructure programmes;

•regulators rely on us to fulfil our fiduciary responsibilities;

•individuals rely on us to manage their hard-earned savings responsibly and deliver good value; and

•society relies on us to facilitate efficient capital allocation to fund economic growth.

There can be no doubt that the financial crisis has eroded confidence and trust that we will fulfil these expectations.

Our industry has been accused of unfairly benefitting at the expense of clients, of operating with a general lack of transparency, of taking advantage of conflicts of interest, and generally making money by abusing our position of power and information. As a result, our governance and actions are under unprecedented scrutiny.

I am a firm believer that trust is a structural condition necessary to support all effective human interactions, including those that drive investment. Breaking trust means therefore breaking a foundational structure of behaviour, that leads potentially to irrational actions in search of protection or safety. To re-establish lost trust, we will have to manage expectations more closely, and more accurately (and in so doing accept that we have failed to prove our case as an industry over the last decades).

We must demonstrate professionalism by being fully transparent with our clients, delivering the message that we are a force for growth and for good:

•we need to do a better job of explaining ourselves and justifying our fees

•we need to prove our value and our ability to deliver on our mission and our fiduciary duty;

•we need to meet the expectations of clients in order to be able to keep our promises, count on clients’ trust through ups and downs; and

•we need to be representative of the message we are sending, in terms of diversity and inclusion, in terms of governance and internal policies.

Brexit and the breakdown of trust

To see what a breakdown in trust looks like, we need look no further than the United Kingdom’s referendum on membership of the EU. The result of that plebiscite is quite remarkable on many levels, not least because it went against the recommendation of the Government and Opposition partiesin Parliament. The result itself was an expression of distrust in the Establishment and the status quo.

For those of us in financial services, we are all, to varying degrees, caught up in the uncertainty surrounding Brexit and the implications it may have for Europe’s capital markets.

We have a duty to our clients and the public to be clearabout operational planning and our assessment of the issues associated with Brexit.

The role of diversity and inclusion in rebuilding trust

Another topic of societal importance which is critical to building trust in financial services is diversity and inclusion. Across financial services we have spoken about the need to develop our workforces to reflect better the societies we serve. The reality on the ground and in our firms has not yet caught up with the talk, though.

When we look at the asset management industry, a multi- pronged approach is needed:

•establishing a more rounded graduate intake is relatively straightforward, but this represents a small portion of the workforce;

•establishing an inclusive culture – one where unconscious biases are challenged and where colleagues are developed on potential, and rewarded and promoted on merit – will be integral to achieving and sustaining success; and

•an inclusive culture is one that is more likely to be trusted.

Financial literacy is a long-term project to build understanding

Another long-term initiative that will help to establish trust is financial literacy. Promoting greater financial literacy is something financial services firms – asset managers included–should be engaged in, because financial literacy has arguably never been more important.

Over the last two or three decades, financial risk for one’s future has shifted from employer and state towards the individual. This is a trend that is set to continue. But individuals–at least too many of them – are ill-equipped to navigate a dizzying array of choices, one seemingly more complex than the next.

This leads to the growing importance of financial advice and wealth management, but the additional layers of intermediation do not bring down cost and still leave the individual with the question: Who do you trust?

Too much money is not being put to use through lack of trust. The more people we can educate on financial literacy, the more we can increase individuals’ confidence to engage on their future needs and ask the right questions of financial services providers, so that they are able to distinguish the different offerings and client value propositions.

Tackling fees has to be on the menu

The perception of investment fees – in particular fees relative to outcome – is a thorny topic. Part of the issue is that they come in so many different forms.

It was reassuring to see that the asset management industry got to the right place on broker research costs. While thereis more work to be done on the pricing of research, it is the right long-term answer for us to build this into our costs and management fee.

Another area that we need to give much more attention to when we consider the future of active management is performance fees. This is not because they will make life simpler for investors or distributors to predict a fee, but because they have the potential to transform the experience for clients.

There is also no getting away from the fact that the “price of beta” has been compressed significantly with the broad availability of index ETFs and other beta products – only some active managers have responded to that particular challenge by readjusting their pricing models.

Tightly aligning the interests of investment managers with clients will create the opportunity to change the conversation, from one which is pro-cyclical where no-one owns the performance, to one that is counter-cyclical so that there is a real long-term partnership based on creating and sharing value together

In this context, we can also demonstrate the value we can and do bring as active stewards of capital and supporting sustainability through important extra-financial considerations such as ESG.

To sum up

For those of us who operate in financial markets every dayon behalf of our clients, we should welcome initiatives and measures that help to build trust structurally and for the long term – as this will be the only way to fulfil our mission, and to guarantee the sustainability of the industry and the growth of our economies.

The steps we need to take are multi-layered and multi- dimensional:

•it’s about the value proposition at the level of the firm but also the working of the eco-system; and

•it’s about delivering on the needs of society but also supporting broader and deeper societal understanding of the role of investment.

As an industry we need to take advantage of the opportunity to play our part in helping to rebuild trust structurally. It’sthe opportunity to align our interests with those of clients in favour of shared successes and sustainable practices. This will not only ensure value for customers but, I would also argue, improves the long-term health and sustainability of the industry.

Abridged version of a speech by Andreas Utermann, CEO of Allianz Global Investors, and member of the ICMA Board, at the Asset Management and Investors Council (AMIC) Conference on 22 November 2018 in London