Finding the Right Investment Manager During COVID-19

December 1st, 2020 · 3 min read

Most investment firms get hired by families, individuals, or organizations with substantial assets for guidance in achieving their financial goals. Most investors have had a lot of chaos throughout Covid-19. Financial entities continue to pop up, offering different services. The entire investment process is reaching unified globalization. Competition is increasing when it comes to investment management (IM) firms. Investors are having a harder and harder time finding IM's that are suitable for them. If you are looking for an IM firm, make sure you look for the following characteristics while choosing an investment manager:

  • Strong Cybersecurity
  • Advanced Digital Marketing Offerings
  • Confident Meeting all Regulations
  • Compliance With Global Investment Performance Standards (GIPS)

Strong Cybersecurity

Cybersecurity is so critical when it comes to every aspect of the financial industry. Covid-19 has created so many security susceptibility issues across businesses. The use of technology, automation, cloud needs, and remote offices have opened many more cyber attack opportunities. The financial industry has always been one of the highest targeted industries historically, but even more so now.

Companies have had budget restraints due to Covid-19, and expenses are getting cut. Ensure that the firm you select is not one of the many that may put you at risk due to lack of security. Investors need to be seeking out investment managers that have increased all resources in regards to cybersecurity programs. Ensure there is board involvement, and the management is in agreement with keeping up with the ever-changing technology to protect data against cyberthreats and attacks. IM firms need to support the business needs to offer continuity planning and disaster recovery beyond cyber resilience. You also want to make sure they select third-party asset custodians and recordkeepers that are also maintaining their responsibilities for the security services they are providing to the firm. They need to have plans for confidentiality, security protocols, and protection of sensitive data. The asset custodian's and recordkeeper's SOC 2 reports can offer investors a place to review the controls relating to operations and compliance that every organization is implementing. The controls related to operations and compliance are outlined by the AICPA's Trust Services criteria related to availability, security, processing integrity, confidentiality, and privacy. These reports also have descriptions of the service auditor's tests of controls and results. Organizations are getting held to a diligent standard in terms of security controls.

Advanced Digital Marketing Offerings

IM Firms with enhanced digital marketing capabilities seem to have a slight timing advantage over those who do not. They seem to access information that may increase management's risk awareness, improve the strategic trading selection process, and build effective investment models. The market is fast-moving, especially during this pandemic and any time of crisis. It's essential for management to invest in traditional and alternative forms of data processing software. By alternative, we refer to unofficial or noncompany sources to help managers with other insights and metrics pertaining to performance in the quickest and most accurate way possible. Active managers with enhanced digital market capabilities can act quickly during a crisis and identify volatile market opportunities. Managers of long-term approaches can also benefit by using real-time information.

Confident Meeting all Regulations

There has been so much corporate fraud, market downturns, and terrible operational risk failures over the last decade that regulatory authorities have increased financial service firms' requirements. The most competitive IM firms are the ones that have taken a proactive approach to the shifting regulatory environment. The following are all necessary but gradual processes:

  • Gathering enough resources
  • Dedicating time to organizational development and structure
  • Identifying compliance and risk management processing issues
  • Designing a plan of action

Investors should always review the IM firm's regulatory exam results and ensure that the IM firm stays up to date on their advisory agreement, compliance manual, and privacy policy annually at a minimum.

Compliance With Global Investment Performance Standards (GIPS)

The CFA Institute issues GIPS standards (a set of global standardized methods and principles for fair calculation and investment performance presentation). The GIPS compliance is voluntary and offers IM Firms credibility and investors the transparency they need to make smart management decisions. IM firms should always stay in compliance with the GIPS standards.

There is a significant pandemic going on, political unrest, economic and social disarray at the moment. The market volatility has increased. As an investor, you don't want to lose confidence. Investors should look for the above characteristics when seeking out investment managers.