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

Restoring Trust

Posted In: Uncategorized

I had the privilege on Thursday of being in the audience in Toronto at the Canadian Club’s luncheon speaker presentation, in which Margaret Franklin, CFA, chair of the CFA Institute Board of Governors, gave a candid assessment of investor distrust of capital markets. Marg’s presentation follows on the heels of past presentations at this venue by prime ministers, former U.S. presidents, ambassadors, and CEOs.  It was gratifying to see Marg and CFA Institute in such prominent company, and to have it recognized as an important voice on the financial crisis and recent alleged misdeeds in our financial services industry.  At the same time, it is telling that our industry has occasioned such high-level interest in its practices and ethics.

Marg’s message was straightforward: investors are not lacking for reasons to distrust the markets and those who work in them, and restoring investor trust has to be the first priority of every practitioner. Public and regulatory tolerance for ethical lapses has been drained, and she noted the critical need for giving investment professionals better training to deal with the inevitable challenges and conflicts of interest that arise in serving as agents for investors. Citing several challenges faced by Canada’s securities regulators, making sure that the right enforcement and legal infrastructure are in place was another major theme of her remarks.

Particularly in the U.S., in the aftermath of taxpayer bailouts of financial institutions, the investing public remains highly skeptical of our industry. Better financial regulation is one option, but clearly no panacea. Marg’s remarks urged the profession itself to insist on high standards of practice and show no sympathy for those among us who cut corners or fail to put customers’ interests first. She extolled the audience to distinguish themselves as professionals by building ethical conduct into every aspect of their investment management businesses. As she made so very clear, investor confidence is at stake, and without trust, our industry, and the services it provides, cannot properly function.

What do you think? What is the single-most-important thing practitioners can do to restore investor trust?

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About the Author(s)
Kurt Schacht, JD, CFA

Kurt Schacht, JD, CFA, is the Senior Head, Advocacy Advisor, Capital Markets Policy at CFA Institute, where he oversees advocacy efforts and the development, maintenance, and promotion of the highest ethical standards of practice for the global investment management industry.

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