Views on improving the integrity of global capital markets
26 January 2012

2012 Edelman Trust Barometer: Financial Firms Fall Farther

Following a tumultuous year for global capital markets that saw the longest-ever insider trading sentence and the Olympus Corp. accounting scandal, public trust in the financial services sector has taken another hit, according to the findings of the 2012 Edelman Trust Barometer. The study, in its 12th year, measures attitudes about the state of trust in business, government, NGOs, and media across 25 countries.

And once again, banks and financial services find themselves at the bottom of the rankings, with only 47 percent and 45 percent of respondents, respectively, scoring these sectors positively on the trust scale. That’s worse than 2011, when the banking and financial services industries notched respective scores of 50 percent and 48 percent. 

The Edelman report attributes several factors to the declining trust in financial services. The eurozone debt crisis led to significant percentage-point declines for the countries of Germany, France, and Spain. Meanwhile, ongoing political gridlock was seen as contributing to declining trust in not just the financial services sector, but also across government and business as a whole. 

In fact, trust in government suffered its steepest decline in Edelman history. “In 17 of 25 countries surveyed, government is now trusted by less than half to do what is right,” the report states. Many factors were at play, including governments’ response to natural disasters and questions regarding their ability to effectively manage political and financial crises.

Among the institutions of government and business, trust in individual leaders also waned. While specific individuals were not singled out, credibility ratings for government officials/regulators and company CEOs plunged on the issue of whether they were trusted sources of information. Only 29 percent of respondents viewed government officials and regulators as credible — significantly lower than the 38 percent who consider company CEOs trustworthy. However, both groups sustained drops of more than 12 percentage points from 2011.

One interesting aspect of the Edelman report overlaps with the findings of the 2012 CFA Institute Global Market Sentiment Survey, and that relates to the belief that more — rather than less — regulatory oversight is needed. Indeed, the declining trust and credibility scores for government institutions in the Edelman report does not change respondents’ views that, for businesses to improve, there is continual need to improve operating rules and regulations.

As the Edelman report states, “business has the flexibility and speed” to implement change on its own. For their part, investment management firms can earn a “license to lead” by utilizing the ethics resources of CFA Institute. The Asset Manager Code of Professional Conduct provides ethical principles for firms to follow that strengthen their commitment to protecting client interests. By completing the Ethical Decision-Making Course, firm employees gain techniques for dealing with the many ethical challenges faced by asset managers.

Clients are looking beyond simple market returns to find managers with whom they entrust their invested assets. Simple steps on the part of the investment management industry can raise the bar on ethics and what individual firms expect of their employees. It will take the combined efforts of many to regain the lost public trust the industry has sustained over the past several years.

About the Author(s)
Glenn Doggett, CFA

Glenn Doggett, CFA, was a director of professional standards for CFA Institute. His responsibilities included providing member guidance in applying the ethics and standards of practice policies, supporting related educational and public awareness activities, and working with the Standards of Practice Council of CFA Institute on its initiatives. He was a co-host of the free, live, interactive webinars used by CFA Institute to promote ethical decision making and global best practices. Previously, Mr. Doggett, as a member of the CFA Institute Financial Reporting Policy Group, represented membership interests regarding reporting and disclosures initiatives, including XBRL. Prior to joining CFA Institute, he worked in the financial information sector with SNL Financial, where he focused on the real estate and energy industries, directing the development and maintenance of a financial data storage system. Mr. Doggett holds a BA in economics from the University of Virginia. He was awarded the CFA charter in 2006 and is a member of CFA Society Virginia.

2 thoughts on “2012 Edelman Trust Barometer: Financial Firms Fall Farther”

  1. Thanks for highlighting these worrying trends. When an industry loses its license to operate, this can be very hard to acknowledge but it’s better we put aside the natural denialism sooner than later.

    And in that regard, do we really still believe that personal ethics training can address systemic market design failures? Just how will analyst training affect the tendency to endorse co-opted auditors? Or allow companies to continue to co-opt regulators? Or how will training change the incentives for analysts which rewards them for NOT integrating ESG performance into mainstream decisions and NOT identifying, for example, the many M&As which destroy value?

    Don’t get me wrong. Personal ethics training can’t do harm and may even do some good if staff believe that their leaders will walk the talk and reward good ethics. And it’s nice to see the inclusion of a bit of corporate governance into the CFA syllabus.

    But my feeling is that it’s high time to be more creative, more systemic if we really want to address the trust deficit and move to more resilient, more sustainable financial markets where we aren’t acting as the enablers for more and more “preventable surprises”.

    If I’m wrong, and we do have evidence that training can address systemic design issues, I’d love to see it. If not, I would love to work with others on systemic interventions which could help: is one example and another

  2. Thank you for posting your comments.

    In addition to the ethical decision-making training, CFA Institute undertakes a number of advocacy efforts with regulators addressing issues such as corporate governance and other systemic factors that were part of the recent crisis. These efforts are informed by the perspectives of our members globally.

    The Ethical Decision-Making Course is designed to assist firms in maintaining and promoting a strong culture of ethics within their organization. The program provides attendees with a framework for considering the ethical implications of their workplace decisions. Making sound ethical decisions is fundamental to restoring and maintaining integrity in capital markets.

    There continues to be a lot of room for growth and change within the investment industry. CFA Institute is working to maintain the integrity of the market according to the rules of today, while also pushing for change that will improve things in the long term.

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