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.”