The Kay Report, a Government-backed review of the financial sector, has accused the City of an obsession with chasing short-term profits.
Fund manager Chris Hutchinson (pictured) believes this kind of short-termism is also a big problem in the asset management industry and is at odds with how investors would like to see their capital deployed.
"It may be old fashioned but we really believe that most investors want their managers to take a long-term, low-turnover and long-only approach to managing their money," said Hutchinson, who heads up the FE five crown-rated Unicorn Outstanding British Companies portfolio.
"Unfortunately, over the last 20 years the big bang has created a move towards quant-based short-term trading mechanisms."
"I almost laughed out loud when I read recently that the average trading period for equities is something like 22 seconds – in an ideal world we’d look to hold a company for at least five years."
Many investment banks employ sophisticated technology to trade stocks and options several times a minute with the aim of making a tiny amount of profit, sometimes a fraction of a penny, with each trade.
The practice is wide-spread and has boosted profitability in recent years, but critics say that it can distort the market for more traditional investments.
"There is a huge disconnect between what we do and what a large bulk of the market is doing via high frequency, automated trading," explained Hutchinson.
"The worry is that it can bring higher levels of volatility and the chance of share price manipulation."
So-called algorithmic and high-frequency trading have both been blamed for the escalation of the 2008 financial crisis as well as the "flash crash" of 2010.
In June, JP Morgan Chase’s chief executive Jamie Dimon was forced to apologise to investors after the bank reported losses of $2bn after traders were mismanaged.
Hutchinson commented: "If incentives through bonuses are based on delivering short-term profit then that is the approach traders are going to take and my feeling is that many will be taking on much more risk than they ought to be."
"We’re already seeing that organisations involved in this sort of trading have lost huge sums of money. Short-term speculation is akin to gambling and there are always going to be heavy losers."
"We think investing should be about providing the long-term capital companies need to grow their business."
Julian Chillingworth (pictured), chief investment officer at Rathbones, says that short-term trading harms the image of the banking sector and jeopardises genuine investment in business.
"Over time, a culture of short-termism has developed and it is down to the industry to work with the managers of the businesses they invest in to encourage growth over a longer horizon," he commented. "The banking sector has thrown up a number of examples in recent years where short-term trading has proved problematic."
"The Kay Report has highlighted a need to encourage longer-term investment and we concur with that. Investors need to look past the volatility of equity markets and take a five- to 10-year view," he said.
Chillingworth, who manages the Rathbone Recovery fund, agrees that investment bank bosses need to reward traders for longer-term outperformance to deter them from taking on undue risk.
"In terms of remuneration packages I think bonuses need to be based around three- to five-year results," he said.