Unlocking Real Value Blog

AK In The News: Managers Must Gauge Damage From JP Morgan News

I was asked to write an opinion piece for Fundfire (a Financial Times Service). My thoughts were published in today’s edition. The focus of the piece is on how the brands of both JP Morgan and other asset managers have been affected by the trading loss and what both JP Morgan Chase and asset managers should do at this point. Here are my thoughts.

How bad is the damage to JP Morgan’s brand as an asset manager? I believe it’s significant. However, this is only one of the issues today. In this partisan world, only one misstep can give the opposition an opening to exploit. Nonstop bad publicity can and will erode a lot of the goodwill that JP Morgan has built up in the past.

By downplaying these losses a few weeks ago on an earnings call, Dimon violated the most important best practice that asset managers must adhere to following a crisis – that of being 100% transparent. Many wonder if there’s another shoe waiting to drop and whether we can trust JP Morgan Chase any longer. Already, indications are that the trading losses are at least 50% greater than the $2 billion first thought.

These losses also revealed the violation of other important principles that the industry should always follow – the importance of compliance, oversight and institutional control.

While high-net-worth retail investors might ask, “Is my money safe?”, institutional investors will ask, “Is there an institution-wide lack of control?” The fiduciary responsibility cast upon investment committees mandates that they must ask the right questions – and JP Morgan Chase better have the right answers.

What about the implications for other asset managers, and what should they do? First, if they haven’t done so already, they must proactively address what has happened and emphatically illustrate that they have control of their own business.

Asset managers must, in essence, protect their brand, because fiduciaries will be asking the same questions of them that they are currently asking of or about JP Morgan Chase; they have to. Silence is not an option, and other asset managers will be found guilty by association if they don’t straightforwardly answer the questions on their clients’ minds.

Their answers and other communications should focus on:

  • Transparency
  • Compliance oversight
  • Operational capabilities
  • The strictness of the parameters that dictate their process
  • The strength of their people

Asset managers must remind clients why they chose them as their asset manager in the first place. Asset managers must highlight their unique value proposition, and the soundness and stability of their organization.

Finally, what is important to clients now will also be important to future prospects. Asset managers should use social media, their websites and blogs to proactively showcase their brand as well as all the efforts they make to ensure that client assets are protected to the greatest degree possible. Executives not fluent in social media should use whatever their normal means of communicating are – whether it is the phone, email, a whitepaper or a newsletter.

We live in an extremely viral world – which is exactly why this mess has cascaded out of control the way that it has. Asset managers must use this as an opportunity to reassure investors of their integrity and the soundness of their firm’s compliance oversight and investment principles.

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