CFA Institute members have weighed in, and the outlook for the coming year is far from optimistic. We’ve released the findings of the 2012 CFA Institute Global Market Sentiment Survey, an extension of the annual Financial Market Integrity survey that CFA Institute has conducted for the last several years. Over 2,700 CFA Institute members across the globe responded to this year’s survey, with sobering perspectives on the outlook for market integrity and performance.
Compared to 2011, confidence in prospects for improvements in the integrity of global capital markets in the coming year is dropping, from 32 percent of respondents in 2011 to only 22 percent in 2012. While this isn’t so surprising in light of current economic challenges and the continued fallout from the global financial crisis, it’s still disheartening given that survey respondents are so close to the inner workings of the markets. Members indicated that improving global systemic risk oversight and improving enforcement of the laws and regulations already on the books are the most important actions to take in the coming year to improve trust and market integrity. We’re of similar mind, and our advocacy agenda has emphasized the need for objective, well-resourced mechanisms for systemic risk detection and mitigation.
When asked about the single-most-serious ethical issue facing the global markets in 2012, survey respondents most often cited mis-selling of products by financial advisers, followed by the use and reporting of derivatives. Both issues are at the heart of the need to restore trust among investors. Those who purport to offer advice need to have skill, but they also need to demonstrate loyalty to client interests above all others. Greater transparency around financial innovations like derivatives will bring clarity around both potential returns and potential risks, making the use of these instruments more appropriate and less dangerous to systemic stability.
Not so coincidentally, the survey’s report of pessimism around market integrity accompanies some fairly dark views on market performance, much of which is discussed on the CFA Institute Enterprising Investor blog. Trust in markets and market professionals has been undoubtedly damaged by the crisis. And without renewal of trust and faith in a fair playing field, it is difficult to plot a sustainable path for improved market performance.
Regulatory reform is certainly part of what’s required to bolster the rules and regulations that protect investor interests. But, as we’ve seen, regulatory reform is a slow and sometimes tortuous process, subject to shifting political winds and difficulties in bridging complex issues and diverse jurisdictions. Providing clients with expert care during difficult times doesn’t require new regulations or laws, however. Practitioners are free to embrace the highest standards and prove to clients that their trust is well justified.