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By Christopher Davis | 01-07-2011 04:04 PM

Is 'Sludge' Slowing Down Your Fund Firm?

Focus Consulting Group's Jim Ware discusses the corporate culture that lets some fund firms thrive while others lose ground.

Christopher Davis: Hello, I'm Christopher Davis. I'm a senior mutual fund analyst with Morningstar. Today, I welcome Jim Ware. Jim is the founder of Focus Consulting Group. Focus Consulting's mission is to serve investment organizations of all stripes, helping them improve their cultures so that they could thrive as investment organizations.

Jim, welcome today.

Jim Ware: Thank you Chris. Happy to be here.

Davis: Jim, as you know, investment cultures are really what make a firm, what makes firms tick. If a firm has lots of personnel turnover, if people are leaving every other day, if they have no defined investment cultures, and if they are really able to raise assets rather than to manage money, they are probably not going to be very successful as investors.

You know during tough times that's really when a culture is tested and the best stress test of all was in 2008, during the financial crisis. And your group took a look at several fronts, I think about 60 of them or so and how they fared during the crisis. And you singled out the firms that did best. You call them the Focused Six. Could you talk a little bit about what allowed these firms to thrive and maybe talk about the ones that didn't do well and why they didn't?

Ware: Exactly, Chris. So, let me first say, we have a lot of data on investment firms. I get the pleasure of working with asset management firms all around the globe. And in rooms full of investment people, where we are collecting data, we now know that in response to the question, "Is culture important to your investment firm's success?" 93% of investment professionals say yes.

Davis: What are those 7% thinking?

Ware: 7% are in the neutral category, because we use a Likert Scale. We say you can vote 1, which is strongly disagree, 5 strongly agree, 3 is in the middle.

And 93% are either agree or strongly agree with the statement that "Investment culture is important to our firm's success," and the other 7% are pretty much all in that neutral category.

But, overwhelmingly then, we've got the investment community agreeing with your statement. That early statement you made that investment culture is important to success, and we think that's true.

Now, when we ask them why is it important to success. In other words, if you are one of the 93% that says, "Absolutely, culture is important." Then we say, "Well, what benefit does it provide?"

And what we find is that overwhelmingly there is a benefit that investors identify and it is effective decision-making. If you have a strong culture, it leads to effective decision-making.

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