Martin Scorsese’s film The Wolf of Wall Street is fueling the public image of an untrustworthy industry which feeds on the small investor — the poor, unsuspecting sheep. The movie reinforces the caricature of an evil Wall Street: brokers, financial advisers, bankers, and traders who steal from their clients and celebrate their ill-gotten gains with excessive consumption. In a feature article for Bloomberg Business, Sheelah Kolhatkar recounts the story behind the movie — the life of the real “Wolf of Wall Street,” Jordan Belfort. She explains his climb, his crash, and the redemption that Belfort now pursues.
For all of us who faithfully labor in the financial markets to serve our clients well and to put their interests first, the movie and its publicity create a disturbing sense of reputational destruction. It is frustrating to see the headlines about Belfort, Madoff, and other swindlers while we work to restore market integrity. We understand that in order to participate in the capital markets, investors need to be confident they have a reasonable expectation for a return on their capital. We have to strive that much harder to reassure clients that they can trust investment managers to treat them fairly.
Some politicians and industry thought leaders have leveraged this predatory image to cast a spotlight on the “overpaid” and “under-regulated” financial services industry. In some corners, the crisis is being framed in terms of income disparity, with calls for new regulation and increased government control over the financial markets. The topic is a favorite of World Economic Forum (WEF) founder and executive chairman Klaus Schwab, as chronicled in a recent Guardian article, and topped the agenda in Davos at the WEF’s annual meeting in January. But more government control may not be the salvation some purport it to be.
Indeed, the 2014 Edelman Trust Barometer shows that trust in government in declining — 44% of global respondents have trust in government versus 48% in 2013. Following the financial crisis, calls for a regulatory overhaul ushered in a series of reforms globally to help avoid future industry meltdowns. It remains to be seen whether regulators will successfully implement these reforms.
Who, then, are vulnerable sheep to trust?
- Should small investors rely on government to protect them? In seeking government intervention, they are likely to reap higher fees and lower net returns, as the costs of regulation often are passed through to investors. Policy makers may also impose changes that alter the markets in ways that are much more restrictive for investors, as is under debate in Europe regarding the sale of structured products. Investors could be risking the freedom to choose their own investments: exchanging opportunity for safety.
- Do small investors take their chances with the “wolves of Wall Street?” They may be at a distinct disadvantage when trading in a marketplace that favors large institutional investors and high frequency traders. Investors also risk being preyed upon by advisers who are focused on their own fees, rather than on the investor’s best interests. They stand to lose all or part of their assets, competing against those who have better information and who stand to profit from small investor naiveté.
Investors can find reliable guides from among those who work in the investment profession. Under the banner of the CFA Institute Code of Ethics and Standards of Professional Conduct — and a commitment to put investors first — more than 100,000 CFA charterholders around the world are striving to be good shepherds. Member surveys taken by CFA Institute consistently put ethical practice at the top of the list of member concerns. As individual practitioners, we avidly pursue our professional practice of investment management with our clients’ interests at the forefront of our efforts. We work to protect our flocks from the parts of the markets where the dangers exceed the gains to be made. Our call is to guide them towards portfolios that fit their specific needs, rather than those that generate the highest fees.
CFA Institute staff and volunteers are also working to make important policy recommendations to regulators and lawmakers in Brussels, Washington D.C., and (through our local member societies) in Ottawa, Sao Paulo, London, Frankfurt, Paris, Hong Kong, Sydney, Singapore, Beijing, and Tokyo. In recent comment letters to the U.S. Securities and Exchange Commission, Public Company Accounting Oversight Board, European Securities and Markets Authority, International Accounting Standards Board, Basel Committee on Banking Supervision, and other policy makers and standard-setting bodies, CFA Institute has been speaking out for investors. We want to help shape the way governments address flaws in market regulation that will protect investor interests without unduly restricting the product innovation and flexibility available to those who put their money at risk. It is a balancing act to be sure, but important to investment professionals and investors alike.
The mission that CFA Institute and its members have embraced is “to lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.” Protecting investors — whether from the wolves of Wall Street or government overreach — is core to that mission. Shepherding is our business.
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