Practical analysis for investment professionals
20 March 2013

The Credibility Gap: The Systemic Implications of Trust (Video)

At the recent Global Investment Risk Symposium, John Taft, head of RBC Wealth Management in the United States and author of Stewardship: Lessons Learned from the Lost Culture of Wall Street, spoke about the implications of the widespread loss of trust in financial institutions following the financial crisis, noting that his work to restore trust and confidence in the financial markets and the financial system dovetailed with similar efforts by CFA Institute.

Last year, John Rogers, president and CEO of CFA Institute, issued a call for action to restore trust in the financial services industry, asking CFA charterholders to be a bolder voice for ethics, focus on financial activities that enable economic progress, and share their knowledge and skills with others in the field of finance.

Taft said that today, investing is “an act of faith.”

“For individuals to put their savings into stocks, or into bonds, or into mutual funds, or into any one of the thousands of investment vehicles available globally, they need to believe at some fundamental level that the future will be better than today,” he said. “And that faith in a better future fundamentally was what was disrupted, broken, crippled — use whatever word you want to use — by the financial crisis. And it has yet to be restored.”

Taft said society has certain expectations for what role businesses and industries should play. And in return for businesses and industries respecting that contract, society grants the business or industry a franchise to conduct their business. “Think about the franchise that society grants to the financial services industry, and think about whether we lived up to our end of the contract,” he said. “That is the source of the lack of trust and confidence we are dealing with today . . . you can’t have an economic or financial system without trust.”

What can we do?

Some of the other themes covered in the presentation and Q&A above:

  • “Stewardship ought to be the principle that undergirds the financial services industry.”
  • “Like the issue of bullying in schools, it’s not enough to be a bystander. If you see untoward behavior, you actually need to identify it and name it and shame the perpetrator. That doesn’t go on enough in our industry.”
  • “A fiduciary is not obligated to have a conflict-free relationship with their client. . . . The obligation of a fiduciary is to disclose any conflicts . . . transparently and explicitly, and to not act in a conflicted way unless and until the client accepts the conflict.”
  • “People are embarrassed to tell their families they work in the financial services industry today. . . . That shows that we have lost touch with what our purpose, mission, and role should be in society. And until we find our way back there, we won’t solve the systemic issues we are having with lack of trust.”
  • “Having a fiduciary standard is a step towards the kind of regulatory improvement that will help promote trust and confidence. I would like to be able to say ‘every one of our advisers is a fiduciary.’ I would love to be able to make that statement to my clients and shut off the narrative that we are merely between 9:15 am and 9:25 am conflicted merchandisers of unsuitable product, but then we put on our advisory hat.”
  • “The fiduciary standard would be huge step towards restoring credibility in our industry.”

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Lauren Foster

Lauren Foster is a content director on the professional learning team at CFA Institute and host of the Take 15 Podcast. She is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Lauren spent nearly a decade on staff at the Financial Times as a reporter and editor based in the New York bureau, followed by freelance writing for Barron’s and the FT. Lauren holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

1 thought on “The Credibility Gap: The Systemic Implications of Trust (Video)”

  1. Edgerson says:

    I’m very glad to look your article. Thank you so much and i’m having a look ahead to touch you.

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