How Would You Change Finance for the Better?
As part of Putting Investors First Month May 2015 we asked CFA Institute constituents via social media: How would you change finance for the better? By the way, if you would like to respond to this thread please do by using the #InvestorsFirst hashtag on social media. Also, be sure to visit the Putting Investors First website. Here then is a sampling of some of the more interesting responses that we received.
Many commenters emphasized changing the industry directly. One example repeated multiple times is to alter the incentives so that pay more closely aligns with clients achieving their objectives. Closely related to this suggestion is to change the entire emphasis of finance away from obsession with returns, and instead focus firm and adviser efforts on achieving client’s goals.
Among the more adventurous suggestions — again, repeated by many — was to break up the big banks. Just how this should be done was not offered by the contributors. However, in a recent Future of Finance Online Forum, “Is Finance a Noble Profession?,” it was suggested that a return to the finance and banking industry of Glass-Steagall is an appropriate direction.
Another excellent way for changing the industry suggested was for the industry as a whole to begin emphasizing its societal benefit. Many practitioners over the years have said that the benefits of finance are largely ignored in the press and by regulators, while the missteps get endless play. However, our contributors suggested that the entire philosophical focus of the industry must be on creating societal benefit, rather than simply meeting quarterly profit targets, or reaching individual performance targets solely to earn outsize bonuses.
At a more regional scale, those responding to our query suggested that finance could benefit by better recognizing the needs of individual global regions. That is, the needs of the citizens of the continent of Africa tend to be very different from those of the citizens of Australia, for example. Also, Islamic finance and its emphasis on ethics were seen as a source of inspiration for all of finance.
At the client level there were many suggestions for how to change finance for the better. One such suggestion, oft-repeated over the years, is to better educate the public about investing. Some contributors fired back, however, that one way to aid the general public’s understanding of finance is to simplify the language used to describe finance. In other words, less jargon, more real-life examples, and a shift away from product descriptions that only the experts can understand. Dove-tailing nicely with this suggestion was to increase transparency about performance, risks, and fees.
Our respondents also fought for the individual client on insisting that all financial professionals dealing with, and pitching to, the public be required to adhere to a fiduciary standard. In fact, CFA Institute President and CEO Paul Smith, CFA, at the 68th Annual Conference in Frankfurt stated that a long-term goal is that the CFA charter be a regulatory requirement comparable to the legal requirement that lawyers pass the barristers (i.e., the bar) exam, or various medical associations and their requirements for becoming a doctor.
Several respondents suggested that more needed to be done at the criminal level, rather than just the regulatory level. That is, they believed that wrongdoers should not just pay fines, but also serve jail time. Still others felt that to improve finance required less regulation, not more.
All in all, it was a lively and passionate discussion. Thank you to all those who took the time to contribute!
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Image credit: iStockphoto.com/FrankyDeMeyer