To ensure independence, candidates cannot have been paid by the fund manager for five years before their appointment, nor have had any business relationship with the fund within the previous three years. Existing non-executives who don’t meet the criteria can stay, but they will not count towards the quota of independents.
Finding the right calibre of candidates with the expertise to question with confidence and speak up when things are going awry will be a huge challenge.
This becomes more pertinent when you consider that some commentators suggest an additional 480 iNEDs will be needed to fill the vacancies.
While the regulator has left it to the discretion of the authorised fund manager (AFM) whether it will accept iNEDs who sit on rival AFM boards, there are benefits to looking outside the traditional circle of candidates.
It is time to widen the recruitment pool. Hiring from outside asset management circles may have some advantages, not least improving the diversity of many AM boards.
It may not be necessary to look outside financial services sectors, indeed it can have benefits – both the banking and insurance markets have plenty of grey hairs with enough battle scars to take on the demanding role.
But becoming an asset manager iNED is a tough job, akin to trying to get an equity card to perform on stage when you’ve never been on stage to get the card in the first place.
Working with established boards and challenging the norm takes someone with confidence. Firms need to look for someone who acts professionally and with integrity, holds a strong but balanced view. Someone with the ability to stand up and be counted, and who will not get pushed around easily.
It can be quite difficult across the entire iNED sector to acquire the necessary skills and then, once they have them, the opportunity to build experience.
A good place to start is by assessing your own skills and getting the right training in areas where you need it. Many people build experience by taking up board positions in other sectors, such as in health or education.
These are efforts that can be taken up by individuals but there must be a broader consensus from all board executives to drive up standards for iNEDs.
We need to be sure we have the right calibre of people to provide best practice services to asset management firms.
In my view, it is likely the FCA will substantially roll out such changes to the majority of substantial financial services firms within five years.