Practical analysis for investment professionals
05 March 2015

Is Finance a Noble Profession? A Summary of the Online Forum

A question on the minds of many investment professionals and among the general public — “Is Finance a Noble Profession?” — was the subject of a CFA Institute Future of Finance online forum on 26 February 2015. On hand to try and address this question, as well as to provide proactive advice for how to ensure that finance is considered a noble profession, were the following expert panelists:

  • Kim Ann Curtin, author of the forthcoming book Transforming Wall Street, professional keynote speaker, executive coach, and founder of The Wall Street Coach.
  • Richard Evans, founder and general manager of SSR Health, LLC, a specialized investment research and strategic advisory firm focused solely on health care.
  • Laura J. Rittenhouse, author of Investing Between the Lines, as well as founder, president, and CEO of Rittenhouse Rankings, Inc., a financial communications company that specializes in trust and reputation strategies that affect the corporate bottom line and market performance.
  • Graham Sinclair, CFA, principal at SinCo, the sustainable investment advisory boutique, with a two-decade career on the buy- and sell-side in pension funds management and global institutional investment in the United States, Europe, and Africa.
  • Stephen Viederman retired in 2000 as president of the Jessie Smith Noyes Foundation where he developed and guided the effort to better align the foundation’s asset management with its grants, including some of the first “impact investments” in “responsible growth companies.”

Best Suggestions

  1. CFA Institute could use its Global Investment Performance Standards (GIPS) more tactically to help achieve its stated mission “to lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.”
  2. Create a standard of annual ethics evaluation and an award similar to the Malcolm Baldrige National Quality Award (MBNQA) that would allow consumers to use a financial professional’s ethics as a basis for evaluation and not just returns.

Is Finance a Noble Profession? Most Practitioners Are, Some Are Not.

My first question to the panelists was, of course: Is finance a noble profession? Several panelists said they believed finance is noble and served a noble purpose, while others criticized the industry for its inability to serve client needs. All were in agreement that while individuals in finance may be noble, the industry needs to change in order to become more trusted by the public.

Salient Thought 1: Financial professionals owe ethical responsibility not just to themselves, but also to the industry as a whole. Put another way, “It’s the culture, stupid!”

A common refrain in finance in response to the question of its ethics is: “I am ethical.” This typical reply, taken to its natural conclusion, leaves a gigantic gap. Namely, if the only ethical responsibility owed is to one’s own actions, then there is no way to stop the proverbial (and inevitable) bad apples who are indifferent to ethics. To fill the gap and to change finance, then finance professionals owe ethical responsibility not just to their own actions, but also to the industry itself.

If just 2% of financial professionals are unethical there can be big problems for finance. Mathematically then, individuals need to be 1.00/0.98 = 102% responsible. That is, the incremental responsibility owed to the industry beyond just personal responsibility (i.e. 100%) is just 2%. An example would be an experienced, ethical finance pro who hears a junior colleague disparage a client. In response the old lion could meet the condescension with something very simple, such as, “Hey, that attitude will not get you very far. Our clients are our central focus.” This extra 2% effort is likely to have a large, outsized effect.

What Does Finance Gain by Being Perceived as Noble? Trust — and without That You Don’t Have a Customer Relationship at Any Level.

Panelists who responded directly to the question centered on the importance of trust, or as Sinclair referred to it, “Finance is a faith-based industry, because until the returns are in hand and the fees paid, it is never quite clear what the value proposition is.” In other words, finance, by definition, exists as an intermediary between those with excess capital looking for a good idea of what to do with that capital, and those with a surfeit of capital and a surplus of ideas for what to do with that capital. If the connective tissue of finance does not serve both sides of the transaction described above, then no transaction occurs. With no transaction there is no business of finance.

Salient Thought 2: Finance must put service before profits; profits are the natural distillate of good service.

Salient Thought 3: Continuing education is an important element of what makes a business an actual profession.

Should Financial Professionals Globally Be Held to a Fiduciary Standard? Yes!

Our panelists did not have too many specifics about what a universal and global fiduciary standard would look like, how to implement it globally, or who should enforce it. But each agreed that this standard would help finance be perceived as more noble.

Salient Thought 4: A fiduciary standard may allow lawmakers and regulators to roll back what many believe are onerous regulations.

What Are Some of the Noble Things Finance Does Do? Facilitate Economic Activity and Goal Fulfillment.

Peppered throughout the online forum were reminders of the many laudable and essential services finance provides to the world. First, economic growth and its many benefits, from higher standards of living to higher levels of education, is made possible by connecting great ideas with capital — entrepreneurship is the engine of capitalism. Second, finance helps individuals to fulfill many otherwise out-of-reach dreams, such as higher levels of education, owning their own home, and not working every day of their lives (i.e., retirement).

Salient Thought 5: Finance is a necessary function for capitalism to work.

Was There a Time When Finance Was a More Noble Profession? Yes.

Each of the panelists has a multi-decade career, either in finance or working closely with finance, and most remember a time when finance was more client-oriented, rather than transaction-oriented. In recalling that time, those that responded placed the moment of departure somewhere in the mid-1990s.

Salient Thought 6: The rise of derivatives: a) made finance more confusing for investors; b) shifted product innovation away from assets and toward liabilities; c) removed margins of safety such as collateral and real assets from the system; and d) created a product that needed to be constantly transacted.

Salient Thought 7: The roll back of Glass-Steagall put financial professionals in competition with their clients.

What Can be Done to Make Finance More Noble?

  • Develop a fiduciary equivalent of the Baldrige Award and establish the credential among investors as an essential feature of well-managed, responsible firms. It should meet the following criteria (courtesy of Sinclair):
    • The whole universe of individuals and institutions is on the long list, and their ratings are made public.
    • Criteria are set publicly and amended where input demands updating or tweaking. Judges include all stakeholders and some random members of the public, to keep it real.
    • The host institution is sufficiently endowed (think Nobel, Templeton, Goldman prizes) to be independent and be seen to be independent.
    • An educational and promotional campaign supports the winners and best practices, so that every pensioner, or millennial, or middle-class saver who wants to know, can know more to reduce information asymmetry that drives the success of some conflicts of interest.
  • Bring the disclosure standards for derivatives up to par with disclosure standards for more traditional securities.
  • Work fiduciary standards into the process of hiring, promotion, and compensation.
  • CFA Institute can take on a more public role promoting a fiduciary standard.
  • Find a way for the industry to honor the good people on a regular basis.
  • Individual participants need to be more introspective and spend more time on who we are “being,” instead of only on what we are “doing.”
  • Financial professionals must speak out when they see behavior that they know is not acceptable.
  • Remember Peter Drucker‘s quote, “There is only one valid definition of a business purpose: to create a customer.”
  • At its core, finance must be about fairness, or a level playing field.
  • Regulations that are lean and that drive fairness.
  • Model the right moral fiber and fortitude for more investment professionals.

Salient Thought 8: Finance needs a sense of humor about itself.

The upcoming 68th CFA Institute Annual Conference in Frankfurt, Germany, will include special sessions on Investing with Purpose, where investment practitioners will discuss their work investing to meet the needs of clients while making a positive social impact. Nell Derick Debevoise, founder and CEO of Inspiring Capital; Russell Read, CFA, CIO and deputy chief executive of Gulf Investment Corporation (GIC); and Klaus Tischhauser, co-founder and CEO of responsAbility Investments, will share their perspectives on the investment profession and what investing with purpose has meant for their careers.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo credit: ©iStockphoto.com/sam_ding

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor. Previously, Jason was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. He holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: jason@jasonapollovoss.com

7 thoughts on “Is Finance a Noble Profession? A Summary of the Online Forum”

  1. Marisol says:

    “Economic growth and its many benefits, from higher standards of living to higher levels of education, is made possible by connecting great ideas with capital — entrepreneurship is the engine of capitalism.” Well, yes, if you are living in Asia. In the US and Europe, the financial profession has for some time now abandoned the idea of “connecting great ideas with capital”, because that’s not where the fast bucks are. The fast bucks are to be found in money laundering, arbitrage, derivatives, and other schemes that are purely parasitical, and the parasite is killing the host.

    1. Hello Marisol,

      Thank you for sharing your thoughts about the current state of capitalism.

      Yours, in service,

      Jason

  2. Isaac Simon Sanga says:

    CFA charter should be a legal requirement for all finance Industry profession all over the world since the profession is the heart of the global economy, Billions of dollars are lost in unethical people. CFA what are you waiting for? Finance professionals should be regulated as CPA did for the earth to be a good place to live.

    1. Hello Isaac,

      What an impassioned plea. Yes, it would be lovely if there were a governing body of finance similar to a medical association or barristers association. You would likely be thrilled to know that current CFA Institute CEO, Paul Smith, agrees with you. In fact, at our annual conference late last month in Frankfurt he said as much.

      I would love to hear what you are doing to bring about this change you desire so much! I am guessing you have many rich ideas.

      Yours, in service,

      Jason

      1. Isaac Simon Sanga says:

        I’m currently 3yr Economics & Finance student, taking level 1 CFA exam this June. I want to be one of CFA pioneers in my corrupted country Tanzania where corruption has deepest roots, financial systems are run by group of corrupted people and CFA charter is not yet popular just few are sitting for exams. Due to unethical leadership my country economy has no future, no hope and even financial system is not independent. I’m proud of CFA Institute, for a short period I have learned a lot about Professional ethics & standards and this leads to a bright future of finance professionals for many generation to come, trusted Investment Industry that will serve the clients and the world at large.

        1. Hello Isaac,

          What a great story, and thank you for sharing the on-the-ground in Tanzania reality. These stories are very valuable for members to read about. Would you like to write an article for The Enterprising Investor describing what the investment industry and business environment is like in your home country?

          Sadly, there is a level of corruption in the investment business in the United States, Europe, and Asia, too…it is not unique to Tanzania. However, I think many years from now the efforts of many, including those of CFA Institute, will help to transform the culture of finance.

          Yours, in service,

          Jason

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