Practical analysis for investment professionals
07 June 2013

Restoring Trust in Finance: Remember That “It’s Always Someone Else’s Money”

The financial industry today faces a crisis of confidence that threatens its future. Without trust, markets don’t function properly and growth prospects are limited. So what can the financial industry do to change its trajectory? A panel at the 66th CFA Institute Annual Conference in Singapore, moderated by CFA Institute CEO John Rogers, CFA, provided some answers.

Investment professionals must truly believe that client interests come first — and act accordingly. As Mark P. Delaney, CFA, chief investment officer and deputy CEO of the pension fund AustralianSuper stated: “The first thing is that it’s always someone else’s money.” He urged the audience to think about how they look after other people’s money and what goals their clients need to achieve. As an industry, he observed, the investment profession has lost sight of that purpose and replaced it with self-interest.

Fred Hu, chairman of Primavera Capital Group, reinforced this point, saying the most important thing that the finance industry could do to restore trust is to minimize conflicts of interest and pursue high standards of integrity.

Aaron Low, CFA, principal of Lumen Advisors LLC, took this concept one step further, pointing out that a natural consequence of lack of trust is that the cost of due diligence will go up. Similarly, he said, we are seeing small funds get smaller and big funds get bigger; this concentration is a symptom of the underlying trust problem. In turn, this increases systemic risk — and, as Hu said, “Too big to fail is a universal problem; there are no country exceptions.”

Continue reading on the 66th CFA Institute Annual Conference blog

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About the Author(s)
Rebecca Fender, CFA

Rebecca Fender, CFA, is head of the Future of Finance initiative at CFA Institute, a long-term global effort to shape a trustworthy, forward-thinking investment profession that better serves society. Prior to joining CFA Institute, Ms. Fender was a vice president at BlackRock working with pension funds and endowments, and she also worked at Cambridge Associates, where she published research about manager selection. She earned her undergraduate degree in economics from Princeton University and holds an MBA from the Darden School at the University of Virginia. Future of Finance publications include From Trust to Loyalty: A Global Survey of What Investors Want, and Gender Diversity in Investment Management: New Research for Practitioners to Close the Gender Gap. Previously, Ms. Fender also served as the director of the flagship CFA Institute Annual Conference.

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