Rogers: Restoring Investor Trust
With most markets up this year, it should feel like a happy holiday season for investors. So why is it that public confidence in the financial industry is dismal?
The Scrooge in this picture is the rolling newsreel of revelations of illegal and unethical behavior by financial institutions and their employees.
Although major equity markets have nearly doubled since their 2009 lows, too many investors still feel that committing capital to the markets is a game rigged in favor of just a few financial firms and financial players. This means many investors continue to sit on the sidelines. That creates the risk of a savings and investment gap that will have social implications for all of us in years to come.
As the leading global professional body of investment professionals with more than 110,000 members, CFA Institute is driving the industry toward higher levels of financial expertise and ethical standards. We are also keen to improve how the world of investing works for you. We know that a lack of trust in finance hurts us all. Great ideas do not get funded. Investors do not earn competitive returns. Financial goals are left unmet. And the wheels of economic and social progress slow down.
To restore trust, we must identify the root causes and work tirelessly to address them. In our annual Global Market Sentiment Survey, a clear majority (56 percent) of our members identified a lack of ethical culture at financial firms is the primary contributor to the low public trust of the finance profession. To change the state of affairs, 40 percent of respondents think that leaders at financial firms need to lead ethically. While the overwhelming majority of firms and professionals in finance are ethical and work in the interests of clients, there are too many "bad apples" to allow us to be satisfied with the status quo.
The role of finance is to facilitate economic activity. With their hard earned money, investors look for businesses with good investment ideas and opportunities. Financiers stand between the lender and the borrower, and their effectiveness is based on their ability to earn the trust of both parties over time. Without the element of trust, the transaction between investor is much more costly, inefficient, and in many cases doesn't take place at all.
How can the financial industry make progress?
Among our efforts is the Integrity List, or 50 Ways to Restore Trust to the Investment Industry, that communicates tangible actions professionals can take to ensure ethical behavior. And for individual investors, we work to empower you to insist that financial professionals treat you and your money with your interests in mind first and foremost.
Our survey results are not all doom and gloom. An increased number (40 percent vs. 34 percent) reported that they expect the global economy to grow in 2013. Meanwhile, only 20 percent see the global economy contracting, as compared to 29 percent a year ago. This is a marked shift in optimism compared with 2012.
In addition to a growing expectation of economic growth, 50 percent of respondents believe that the riskier asset classes, especially stocks, will provide the highest returns in 2013. Just last year, only 41 percent of global financial professionals thought so highly of equities.
Among the many global equity markets, CFA Institute's members think that the United States is the best investment opportunity in 2013 (32 percent). Many also rank China (17 percent) and Brazil (10 percent) as likely top stock performers in 2013.
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Survey respondents were particularly glum about Europe. The vast majority (77 percent) believe that the European sovereign debt crisis will get worse or stay the same, while 37 percent are concerned about the effect of the crisis on their local economies.
What can we do with information like this to fix what's wrong in finance? From our perspective, it starts with each of us as practitioners and investors. Working together, we have the power to demand and create a more trustworthy industry where the tenets of ethical behavior are at the heart of successful financial firms
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John D. Rogers, CFA, is the President and Chief Executive Officer of the CFA Institute. He joined the Institute in January 2009 after more than two decades of global experience as an investment practitioner and executive in the Asia-Pacific region and the United States. Mr. Rogers worked with Citibank and CIGNA in Japan and Australia prior to joining INVESCO. He served as president and chief investment officer of Invesco Asset Management Ltd., Japan, CEO and Co-Chief Investment Officer of Invesco Global Asset Management, N.A., and as CEO of Invesco's worldwide institutional division, with over $200 billion in assets under management and 2,500 employees. After leaving Invesco in 2007, he founded Jade River Capital Management.