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THE FUTURE OF FINANCE – TOWARDS A SUSTAINABLE FINANCIAL ECOSYSTEM
Tom Robinson, CFAManaging Director, [email protected]/in/trrphd
May 2014
ABOUT US
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CFA Institute is the global, not-for-profit association of investment professionals that has set the standard for professional excellence since 1947. The CFA Institute family includes over 110,000 members and 143 member societies around the world.
© CFA Institute
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CFA INSTITUTE MISSION
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To lead the investment profession globally by promoting the highest standards of ethics,
education, and professional excellence for the ultimate benefit
of society.
Ethical Champion
Global Community
Industry Knowledge
Professional Excellence
The Greater Good
TOWARDS A SUSTAINABLE ECOSYSTEM
The State of Trust in Our Industry
The Future of Finance & Putting Investors First
What Can You Do?
What Can Firms Do?
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THE FINANCIAL/INVESTING ECOSYSTEM
Opiners
MAINPOINT
Intermediaries Users of Capital
Providersof
Capital
Traders of Capital
Groundskeepers:
• Regulators• SROs• Universities• etc.
Capital Assets/Securities Opinions
“The problems should have gone away when Congress passed financial reforms in 2010. But problems in the industry still exist.”
“From a busted broker with missing customer money to billion dollar trading blunders to lying about LIBOR…”
“A scandal over rigging of key interest rates could plunge the global banking industry into a legal morass that could last years…”
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IN CONTRAST
“Their money is better off in our pockets”The Wolf of Wall Street, 2013
“[T]he financial services industry is at its very core all about the concept of stewardship and all about stewardship values and responsibilities. After all, the foundation of financial markets is public trust and confidence. “John Taft, CEO of RBC Wealth Management – U.S. in Stewardship, 2012
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FOR
MANY
INDIVIDUALS
INVESTING
CAN BE
SCARY
AND
DANGEROUS
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46
49
50
57
57
60
62
66
73
Financial Services
Banks
Media
Pharmaceuticals
Energy
Consumer Packaged Goods
Food & Beverage
Automotive
Technology
2013
48
51
51
59
59
65
66
70
79
Financial Services
Banks
Media
Pharmaceuticals
Energy
Consumer Packaged Goods
Food & Beverage
Automotive
Technology
2014
According to the Edelman Trust Barometer, the financial services industry is the least trusted industry globally.
THE STATE OF TRUST IN FINANCE
LAST!
What percentage of consumers do you think trust businesses in the financial services industry to do the right thing?
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CFA INSTITUTE AND EDELMAN 2013 INVESTOR TRUST STUDY
CFA Institute and Edelman partnered to understand the state of trust in the investment industry. The study conducted in July 2013 surveyed 1,604 retail and 500 institutional investors in the United States, United Kingdom, Hong Kong, Canada and Australia.
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WHICH OF THE FOLLOWING FIRM LEVEL ACTIONS IS MOST NEEDED IN THE COMING YEAR TO HELP IMPROVE INVESTOR TRUST AND CONFIDENCE?
40%
26%
13%12%
6%
2%
39%
25%
13%14%
5%3%
40%
25%
14%12%
7%
1%
40%
28%
13%
9%8%
2%
Improved cultureestablished and
encouraged by topmanagement and
executives
Increased adherenceto ethical codes and
standards
Improvedcompensation
practices
Clarification offiduciary duty
responsibilities
Increased staff trainingand education
Other
Global AMER APAC EMEA
“No opinion” option excluded from results.
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Source: Global Market Sentiment Survey 2014
Investors who do not trust the industry are unlikely to:• Save and invest for their future• Achieve their long-term financial objectives
A “savings gaps” means:• Longer working lives• Lower quality of life• Intergenerational stress
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THE COSTS OF FAILURE OF TRUST
Social impact
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CFA INSTITUTE FUTURE OF FINANCE PROJECT
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Mission/Vision: To shape a trustworthy, forward-thinking financial industry that better serves society
Objective: Provide the tools to motivate and empower each actor in the financial ecosystem to commit to fairness and integrity
Motivating Formula: Fairness + Integrity = Trust
THE FUTURE OF FINANCERestoring balance to the financial ecosystem
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THE FUTURE OF FINANCE
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FUTURE OF FINANCE TOPIC AREAS
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Our Goal: To foster a trustworthy environment in which financial agents serve their clients in an ethical and professional manner.
Key Solutions:• Statement of Investor Rights• Asset Manager Code of Conduct
FUTURE OF FINANCE TOPIC AREAS
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STATEMENT OF INVESTOR RIGHTS
1. Honest, competent, and ethical conduct that complies with applicable law;
2. Independent and objective advice and assistance based on informed analysis, prudent judgment, and diligent effort;
3. My financial interests taking precedence over those of the professional and the organization;
4. Fair treatment with respect to other clients;
5. Disclosure of any existing or potential conflicts of interest in providing products or services to me;
6. Understanding of my circumstances, so that any advice provided is suitable and based on my financial objectives and constraints;
7. Clear, accurate, complete and timely communications that use plain language and are presented in a format that conveys the information effectively;
8. An explanation of all fees and costs charged to me, and information showing these expenses to be fair and reasonable;
9. Confidentiality of my information;
10. Appropriate and complete records to support the work done on my behalf.
Demanding that financial professionals abide by these rights helps you build trust in the person and/or firm you engage with, and thereby collectively restore trust, respect, and integrity in finance.
WHEN ENGAGING THE SERVICES OF FINANCIAL PROFESSIONALS AND ORGANIZATIONS, I HAVE THE RIGHT TO…
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FUTURE OF FINANCE TOPIC AREAS
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Our Goal: To encourage sound retirement planning based on understanding of key issues.
Example:• Essentials of a More Secure Retirement• Pension Trustee Code of Conduct• Life Annuities: An Optimal Product for
Retirement Income• Online discussion forum on pension
design
FUTURE OF FINANCE TOPIC AREAS
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INVESTOR EDUCATION RESOURCES
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AND THERE IS A LOT MORE
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WHAT CAN YOU DO?
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The CFA Institute Integrity List is a collection of 50 tangible steps that investment professionals can take to restore trust in the industry. The list was inspired by “real-world” ideas from CFA charterholders and members.
§ Commit to a gold standard code of ethics and professional conduct.
§ Place the client’s interests before your own. § Name and shame unethical behavior. § Recommend products with transparent payoffs,
costs, and risks. § Help clients focus on risk as much as they do on
performance. § Mentor future investment industry professionals
For complete CFA Institute Integrity List online, visit www.cfa.is/50WaysRestoreTrust
WHAT CAN YOUR FIRMS DO?
• Adopt the Asset Manager Code of Conduct• Strive for a conflict free business model• Require training of staff in ethical decision making• Take responsible actions to address an issue or a crisis• Have transparent and open business practices• Be transparent about risks and fees
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A NEW ERA: FIDUCIARY CAPITALISM?
A business model and culture that is built on a system of trust where clients and investors work as partners and their values are aligned
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FIDUCIARY CAPITALISM IN PRACTICE
1. An ownership-culture with beneficiaries2. Long-term and client aligned compensation schemes3. Re-investment in compliance and risk management4. Realistic and honest leadership spans5. Genuine public commitment to ethics6. Firm-wide implementation of education7. Simple and transparent financial product design
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MAKING A DIFFERENCE
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Focus Areas Ecosystem Actors
• Providers of Capital
• Users of Capital
• Intermediaries
• Traders of Capital
• Regulators
• Analysts
• Investment Managers
• Intl Economic Orgs
• Universities
• Media
Impact on
Future of Finance
ACTION
THE FUTURE OF FINANCERestoring balance to the financial ecosystem
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§ CFAInstitute.org/FutureFinance§ Centerpiece of a global, integrated
marketing campaign with tagline, “It Starts With You.”
§ Focus on depth of content on Future of Finance themes, with continual updates
§ Repository for Project deliverables
§ Designed to drive engagement and sharing
§ Includes a newsfeed organized by topic area: o Putting Investors First
o Financial Knowledge
o Transparency & Fairness
o Retirement Security
o Regulation & Enforcement
o Safeguarding the System
VISIT THE FUTURE OF FINANCE WEBSITE
THE FUTURE OF FINANCE STARTS WITH YOU!
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