by Elizabeth Pfeuti, Rhotic Media
— a short, intensive, and rigorous course of training.
Never let it be said that UK Fund Boards is guilty of false advertising.
On January 24, 2019, attendees at the first UKFB Bootcamp for prospective Independent Non-Executive Directors underwent more than five hours of intensive and rigorous training and fact-finding.
Coffee was grabbed in truncated breaks, as questions for expert panels spilled over their allotted time, and more than 130 people left knowing much more about the task ahead than they had at lunchtime.
Starting off the afternoon, Piers Currie, an adviser to fund houses who spent almost a quarter of a century at Aberdeen Asset Management, set out the challenges for the industry that the congregation would be expected to help resolve.
Currie urged both those in and outside the conference room at the Grange Hotel St Pauls to come up with creative solutions for the industry’s principles-based regulation to enable it to offer the best value for customers, not merely doggedly sticking to compliance.
Taking an objective view was key, explained Currie, who quoted Rabbie Burns ahead of his eponymous evening, which buoyed those attendees who had spent most of their career outside financial services.
Shiv Taneja, founder of UKFB, who followed Currie to the stage, welcomed those less familiar with the industry and outlined the aims of the Financial Conduct Authority for the UK’s £8tn business fund management industry and why it wanted to bring in outside help.
He said that in its review, the FCA had found three main issues with the industry:
o Not enough competition
o Poor governance
o Not enough value being created for customers
Due to the size and importance of the industry not just to the UK economy, but to each member of society that will increasingly rely on it for their savings, investment and retirement provision, improvement on these points was essential.
“Central to all this is the production of the Assessment of Value document,” said Taneja. Fund management companies will need to produce this each year and it will be the main responsibility of those taking on the newly created role of the iNED.
“Some 190 fund management companies ostensibly are going to need around 480 iNEDs,” said Taneja. “By September 30, 2019.”
However, the numbers that will be appointed is closer to 300, said Taneja, and companies are looking for these people now, putting both sides in a similar recruitment conundrum.
Taneja ran through the results of the pre-bootcamp survey attendees were asked to complete. Many, both with financial industry experience and without, said they were unclear on what the FCA expected firms to demonstrate in their Assessment of Value documents. This was a good starting point, said Taneja, as the asset management industry was struggling with that, too.
Fresh perspectives, different skills and collaborative discussions will be the key to figuring it all out, said the UKFB founder, before ceding the stage to the chief executive officer of the fund management trade body.
Chris Cummings, CEO of The Investment Association, explained how the institution saw the role of the iNED developing and its definition of success.
“Expect a bit of a moveable feast over the next few months,” said Cummings. He said both the regulator and industry – along with an incoming cohort of iNEDS – would be finding their feet on these new measures and responsibilities.
Cummings explained the vital role asset management played in the UK, with 75% of households now using it for financial planning and investing. With that in mind, the regulator now views the industry as an essential piece of infrastructure that must withstand the weight of the reasonability.
The industry is taking the regulator’s moves seriously, Cummings said, particularly as it has been taken at its word that it can put its own house in order without need for changes in legislation.
“iNEDs will be there to challenge,” said Cummings. “To ask questions. To ensure customers are getting the best value for money.”
He outlined the regulatory requirements for those looking to become iNEDs, including declaring past connections with specific companies and friends and/or relations within them, too.
Above all, diversity of thought is key for the iNEDs, said Cummings, referencing how the financial crisis was worsened by too many people thinking in the same way.
“What does success look like?” asked Cummings. “It is not a race to the bottom. It is not about making it as cheap as possible.”
Improving competition is not just making someone’s products cheaper than someone else.
He outlined what this success looked like for all parties: regulator, customers, iNEDs and companies – but highlighted that requirements were likely to change over the next few years.
Nose in, Hands out: What asset managers want from their iNEDs
The first panel considered the skills iNEDs would need to have – and demonstrate frequently – to competently carry out the role.
Kate Grussing, managing director at executive search firm Sapphire Partners, said there had never been “a more interesting or exciting time” to get involved in fund management.
Grussing, who has worked for some of the world’s largest finance firms said each fund manager’s requirements for their iNEDs would be different, depending on the type, complexity and culture of the firm.
She advised attendees to not jump into the first role, but take a considered approach, weighing up the “fit” for each side.
Simon Ellis, independent chair at HSBC Global Funds ICAV, said iNEDs would need to understand both their responsibility, but also where the lines between “executive” and “non-executive” were drawn.
“If there is a whiff that an iNED is trying to tell the fund manager how to run their company, it will be an instant black mark,” said Ellis.
Susan Spiller, director at Royal London Unit Trust Managers Ltd, said prospective iNEDs needed to think about the existing composition of skills on the board and what new perspective they could bring, drawing from previous and current experiences.
Martyn Gilbey, UK country head of Franklin Templeton and moderator of the panel, said iNEDs had to strike a balance between having the rest of the board’s confidence, while not succumbing to “cosiness”.
Asked whether the detail of a fund management business would be a barrier to bringing in those with little experience of the sector, the panel said prospective iNEDs need to think about how to transfer their existing skills, as well as picking up new ones.
Gathering experience from other areas of commerce and charity to add to these roles is a specific aim for the regulator.
“It is a steep learning curve, but it is not impossible,” said Gilbey. “iNEDs need to think laterally about their experience and make it applicable.”
The role of the iNED was to be a “critical friend” the panel said, and they should prepare to face conflicts with confidence and reason, and to be intellectually challenged.
Making the slate: Preparing for an independent directorship of a UK fund board
In the second panel of the afternoon, experts discussed what it meant to be an iNED and what they were offering to the industry”¦ which already had a very broad definition of what it wanted.
The panel told attendees to do as much research about a prospective firm as possible – websites, fund documents, interviews – to ensure it was something they could actively add value to.
Lesley Stephenson, publisher at the Financial Times Non-Executive Directors’ Diploma course, said iNEDs could be “worth their weight in gold” if the appointment was right. “They add to the whole board,” she said.
Margaret Cullen, CEO and academic director at the Certified Investment Fund Director Institute, said it was important to learn to manage multiple masters. This is the key challenge of an INED.
“You have a duty to the company itself, and must act in the interests of the underlying fund investors. But there are other stakeholders: the parent entity (product originator), the regulator, the investor.” she said.
Graeme Proudfoot, managing director at Invesco and panel moderator, said iNEDs would not be expected to solve a problem every time, but be able to “show their working” around it.
When asked about entering a company as an iNED for the first time, Diane Wilde, non-executive director of two major funds, said new recruits should expect a comprehensive and tailored induction.
“You need to meet risk teams, marketing, investment managers, everyone,” said Wilde. “And this must continue throughout your term.”
By doing so, you will gain a thorough grounding of the business and create key contacts.
“Make your time valuable to the board,” she said.
Attendees then probed the panel with questions about their experiences, especially of Cullen, who is based in Ireland, which is a fund domicile hub and boasts hundreds of board positions.
After a coffee mini-break, Susan Wyderko, CEO of the Mutual Fund Directors’ Forum in the US, took to the stage to recount her experiences on the other side of the pond.
“Fifteen years ago, we were having these same conversations,” said Wyderko, referring to the changes brought about in the American fund management industry that led to the creation of her institution.
With a background working at the Securities and Exchanges Commission, Wyderko said she had seen her fair share of scandals and understood the importance of strong governance in fund management.
Despite there being some differences in the structure and legislation between the UK and US, Wyderko said there were distinct comparisons to be made between the two, in terms of what was expected from iNEDs.
And, she added, understanding what you were not expected to do was as important as acknowledging the task at hand.
“In the US, independent directors must approve all contracts with the fund, including with the asset manager, using an analysis similar to the “assessment of value.” As a director, you are not there to hire or fire a fund portfolio manager,” said Wyderko. “The business lines of the fund manager are not your affair and it is not your responsibility to determine the viability of funds unless the investors, or shareholders, are being impacted.”
Taneja asked what advice she would give the new cohort of iNEDs, expecting to be in position by September 30.
“You are going to be parachuted into an existing board, you will be new and in the minority,” said Wyderko. “Begin as you mean to go on.”
She said earning trust and confidence from the outset would stand an iNED in good stead for when things got tricky”¦ which they most probably will.
After a barrage of questions from the audience, the bootcamp shifted to the next panel.
Eyes wide open: The legal and regulatory responsibilities iNEDS really need to know about.
Taking the moderator’s chair was Giles Swan, director of global funds policy at ICI Global, who made a wager that his panel of lawyers and policy wonks would change the audience’s view of the professions forever”¦
Laura Houet, partner at CMS, said it was vital to have an understanding of the funds and products they were overseeing to be able to provide effective challenge, but that it was also the responsibility of the fund house employing the iNED to ensure suitable training and to help them acquire this familiarity with the products. It’s not about appointing iNEDs for the sake of it, the asset managers also have a responsibility to be appointing the best person for the job.
“You will need to upskill and show you add value,” said Houet. “Certain products, for example real estate funds, will have particular issues that you will need to know about otherwise it will not be possible to accurately and effectively challenge the value assessment on a fund by fund basis.”
Gordon Brough, a consultant who spent several many years as general counsel at Aberdeen Asset Management, said iNEDs needed to understand three key things: Escalation, process and communication.
“Do the manager and I both understand what I am going to be told about?” he asked. “I cannot do my job if I am not aware of the problem. When I discover the problem, who is going to deal with it?”
He said it was imperative to establish how issues were communicated amongst the board and wider group, especially regarding sensitive topics that could hit the wider company.
Brandon Horwitz, principal consultant at NomBon Consulting, explored the point made earlier about serving multiple masters. He said iNEDs needed to remember that the chair of the board had regulatory responsibility for the Assessment of Value document, so should someone already on their side.
“The thing is to find out how you can add the value,” Horwitz said. “As an iNED you’re going to want to set business and funds objectives and demonstrate how you met them.”
Calvin Barnes, partner at Lockton Companies LLP, explained how, in the event of a disaster within one of the funds the board was overseeing, the iNED should have sufficient insurance cover provided by the fund manager.
“The level of due diligence an iNED does on the people on the board and its process should be high, why not do it on the insurance, too?” said Barnes. “If the problem is big enough, and there are figures to back up the claim, it will always involve board members being sued to some degree.”
Swan concluded the session by saying he hoped to see more party invites because of it.
In pulling the themes of the conference together, Catherine Battershill, responsible for marketing and communications at UKFB, told the group that its next step was to create a network for aspiring iNEDs who could help each other and share experiences.
UKFBs is planning more events to help prospective iNEDs with every step of the process to find a position – and add value once in the role. It will also be publishing regular articles, such as more in-depth reports of the bootcamp and other insightful interviews to help iNEDs on their way to gaining these roles and excelling for UK investors.
To be kept up to date with all UKFB’s plans please sign up to the news alerts via its website.