Just when you thought the industry had run out of nifty expressions to describe the factors driving business success and investment returns, a study has minted a new one.

Wealth management professionals have another term to conjure with to go alongside all the other monikers thought to describe how to get the most investment bang for the buck: “Phi”.

This term comes up in research published this week by the Center for Applied Research, a think tank run by Boston-headquartered State Street Corporation and the CFA Institute. The report, titled Discovering Phi: Motivation as the Hidden Variable of Performance, argues that to succeed, the investment industry and its professionals need to move from a performance-driven culture to one that is purpose-driven to better ensure clients’ long-term goals are met. The research has identified phi as a factor that improves how organizations perform, how clients feel they get a better service, and how staff feel they are more involved in a business.

The term applies, so a statement issued by the Center says, to the “alignment of purpose, habit and incentives at the intersection of the goals and values of the individual, the organization, and the client”.

The research asked three questions based on motivation theory (self-determination theory) to diagnose phi: what motivates you to perform generally and in your current role? What is the reason that you are still working in the investment management industry? Would you describe your work as a job, a career, or a calling?

The report throws in some numbers to be crunched: phi has a “statistically significant and positive link to broad performance measures”, it says. Measures include client satisfaction and employee engagement that can sustain the industry and drive client satisfaction for decades to come. A one point increase in phi is associated with 28 per cent greater odds of excellent organizational performance, 55 per cent greater odds of excellent client satisfaction and 57 per cent greater odds of excellent employee engagement.

America leads, Asia second
The Asia-Pacific region has the second highest phi globally after the Americas.

“Building a culture and environment with aligned purpose, habits and incentives can give organizations a competitive advantage that is sustainable and will benefit clients, the providers themselves and ultimately society as a whole,” Suzanne Duncan, global head of the Center for Applied Research, State Street.

“When investment professionals are asked to deliver against inappropriate metrics on an inappropriate time horizon, their passion for markets eventually becomes divorced from their true purpose – achieving the long-term goals of the investors they serve. Investment performance today isn’t only about alpha; it must focus on phi: a purpose-driven motivation that represents the greatest potential for performance, across market cycles,” Duncan said.

“Phi is the variable that’s been missing for too long from the investment management ecosystem,” said Paul Smith, CFA, president and chief executive officer at CFA Institute. “Like any ecosystem, the investment management industry is predicated on a series of intertwined relationships. The research shows that when there’s a lack of purpose to temper passion, the balance and alignment of interests and motivations becomes distorted and ultimately the most fragile things in the environment bear the brunt of the harm. By focusing on phi, investment professionals won’t merely restore balance to our industry, they will make it easier for everything within our ecosystem to find new ways of flourishing, new ways of capturing alpha.”