Asset managers need to rebuild investor trust

Dealing with the market crisis will drive the risk agenda for global asset management leaders even as the immediate financial shocks fade, according to an Ernst & Young survey.

The '2009 Ernst & Young Business Risk Report - Asset Management' found five of the top 10 risks facing asset managers relate to how the sector responds to the market crisis.

These new risks are threats to the reputation of the industry, the accelerated pace of change in the industry, competition from other areas of financial services, missing growth opportunities, and prolonged reduction in investors' risk appetite.

Dealing with the market crisis ranked as the top risk in 2009 among the survey respondents, which include senior asset management professionals, commentators, and academics.

Graeme McKenzie, Oceania leader for asset management services, Ernst & Young, said the survey results "suggest the reputation of the whole sector has taken a huge hit".

"It is likely that some asset managers' reputations have been so badly damaged that they will never recover," McKenzie said.

"Asset managers will have to take proactive action to rebuild the trust of investors and the public if the sector is to recover its reputation.

"They will have to work with regulators, improve stakeholder communications, and maintain the systems and processes [for monitoring] risks and trading activities."

McKenzie said a key challenge facing the asset management sector is addressing consumer confidence in the superannuation system.

He said there is "significant concern that members have lost confidence in the system, limiting their future contributions and taking a risk averse approach to investing".

"This will have significant detrimental impacts on future retirement savings and reduce the capacity of the Australian capital markets."