Deserving a Seat at the Table

Risk managers at asset-management firms say they have more involvement in strategic issues following the financial crisis.

Nearly all risk managers surveyed by Ernst & Young agree: Their influence within their organizations has increased during the past two years.

However, more than one-quarter (27 percent) of the surveyed chief risk officers, chief compliance officers and other heads of risk management in the asset-management industry say the risk management function is not well-defined at their organization, according to "A Growing Sphere of Influence: Survey of U.S. Asset Management Risk Managers."

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"It sounds easy [to create a well-defined risk management mandate], but it's not," said Alan Fish, a New York-based partner at Ernst & Young, who co-authored the study. "To get that mandate defined and understood, it really needs the support of senior leadership in the organization and, in many cases, the board of directors -- and that takes time."

The process requires a thorough review of roles and responsibilities, as well as defining the organization's appetite for risk. "It's complex in that there are a lot of different functions within the organization," he said, noting that it also depends on available resources, such as budget and technology.

The survey -- which was released in May -- was sent to 75 of the largest U.S.-based asset-management firms. Forty-four responded, and more than three-quarters (77 percent) of their organizations had between $100 billion and $1 trillion in assets. This was E&Y's first survey of its kind.

More than half (52 percent) of surveyed executives in consumer and industrial products, life sciences, health care, and technology, media and telecommunications also plan to "elevate the profile of risk management throughout their organizations," according to Deloitte's "Aftershock: Adjusting to the New World of Risk Management."

Nearly four in five (79 percent) of the respondents stated their approach to managing and responding to risk had changed due to market volatility during the past three years, according to the survey, which was conducted in the spring of 2012.

E&Y's Fish said risk managers are increasing their focus on both strategic risk and reputational risk, also citing the financial crisis and the changes in the regulatory environment during the past few years.

"I think risk is being asked to do more and I think there were lessons learned coming out of the crisis about certain areas of risk," he said. "Now that the role [of risk managers] has increased, they ... [have] a bigger seat at the table."

Along with that increased influence has been a change in resources, he said, noting that some organizations are hiring "people with more of a deep understanding of the business," such as former portfolio managers and traders.

They are also hiring "technologists," who can program and configure information technology tools.

But, crucial to effective risk management, Fish said, is for risk managers to work more closely with compliance.

"That is absolutely a key success factor," he said.

Sharing information and effort provides better organizational insight and effectiveness, Fish said. It also cuts down on redundancy and "risk fatigue," which can result when operations are closely reviewed by those inside the organization and outside -- such as regulators.

-By Anne Freedman

August 22, 2012

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