Following a tumultuous year for global capital markets that saw the longest-ever insider trading sentence and the Olympus Corp. accounting scandal, public trust in the financial services sector has taken another hit, according to the findings of the 2012 Edelman Trust Barometer. The study, in its 12th year, measures attitudes about the state of trust in business, government, NGOs, and media across 25 countries.
And once again, banks and financial services find themselves at the bottom of the rankings, with only 47 percent and 45 percent of respondents, respectively, scoring these sectors positively on the trust scale. That’s worse than 2011, when the banking and financial services industries notched respective scores of 50 percent and 48 percent.
The Edelman report attributes several factors to the declining trust in financial services. The eurozone debt crisis led to significant percentage-point declines for the countries of Germany, France, and Spain. Meanwhile, ongoing political gridlock was seen as contributing to declining trust in not just the financial services sector, but also across government and business as a whole.
In fact, trust in government suffered its steepest decline in Edelman history. “In 17 of 25 countries surveyed, government is now trusted by less than half to do what is right,” the report states. Many factors were at play, including governments’ response to natural disasters and questions regarding their ability to effectively manage political and financial crises.
Among the institutions of government and business, trust in individual leaders also waned. While specific individuals were not singled out, credibility ratings for government officials/regulators and company CEOs plunged on the issue of whether they were trusted sources of information. Only 29 percent of respondents viewed government officials and regulators as credible — significantly lower than the 38 percent who consider company CEOs trustworthy. However, both groups sustained drops of more than 12 percentage points from 2011.
One interesting aspect of the Edelman report overlaps with the findings of the 2012 CFA Institute Global Market Sentiment Survey, and that relates to the belief that more — rather than less — regulatory oversight is needed. Indeed, the declining trust and credibility scores for government institutions in the Edelman report does not change respondents’ views that, for businesses to improve, there is continual need to improve operating rules and regulations.
As the Edelman report states, “business has the flexibility and speed” to implement change on its own. For their part, investment management firms can earn a “license to lead” by utilizing the ethics resources of CFA Institute. The Asset Manager Code of Professional Conduct provides ethical principles for firms to follow that strengthen their commitment to protecting client interests. By completing the Ethical Decision-Making Course, firm employees gain techniques for dealing with the many ethical challenges faced by asset managers.
Clients are looking beyond simple market returns to find managers with whom they entrust their invested assets. Simple steps on the part of the investment management industry can raise the bar on ethics and what individual firms expect of their employees. It will take the combined efforts of many to regain the lost public trust the industry has sustained over the past several years.