Views on improving the integrity of global capital markets
10 January 2011

A New Year’s Greeting from the Road

Posted In: Uncategorized

As I wrap up meetings with CFA Institute members here in India, many of my conversations have centered around investor trust and confidence in capital markets. This is especially apt given the local headlines about the fraud allegedly carried out by a broker at a major global bank.

As schemes go, this one doesn’t look all that inventive: investors were duped with promises of high equity returns, and their cash was diverted to personal investment accounts. Some of the fundamental lessons learned from similar Ponzi schemes might have helped here, including verification of custody of assets and investor recognition that outsize promises should raise skepticism.

So, as I continue to assess global themes in the financial industry, it is unfortunate that fraud and lack of ethics seems to be one of the most familiar.

Perhaps even more pernicious for our industry are things that eat away at client trust, the notion of loyalty to client interests still isn’t as clear as we might hope. Especially in firms that combine brokerage and client advice with discretionary investment management, different clients get different standards of care. Customers often confuse personality for professional standards of loyalty, prudence, and care. They “like” their broker or person giving financial advice and assume such practitioners are acting in the customer’s best interest. Case after case reveals otherwise.

I am struck at what an opportunity this represents for CFA Institute. To stop client abuses of all varieties in their tracks requires industry commitment to ethical standards of practice that are devoted to fair and honest treatment of investors. These are the hallmark of CFA Institute. It also requires credible enforcement by the regulators, creating proper deterrence. In this regard, CFA Institute has been working with jurisdictions everywhere in the struggle for adequate resources.

As 2011 dawns across our industry, we see glimmers of optimism about market prospects worldwide. It is an opportunity for the financial services industry to address its low ethical profile with the public. It is precisely the time to ensure that adequate resources are devoted to smart regulatory efforts, including surveillance technology and meaningful enforcement. And most importantly, it is exactly the time for all industry practitioners to demonstrate stronger commitment to ethical practices and integrity that will safeguard client interests. Make it your new year’s resolution.

About the Author(s)
John Rogers, CFA

John Rogers, CFA, is the former president and CEO of CFA Institute.

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