Putting investors first with a statement of intent
Ever since the global financial crisis, there has been a visible disconnect between the consumers of the products and services offered by the financial services industry and product providers. While this is a problem that is intensifying in nature, there are ways and means to address this disconnect in order to restore the trust that the public used to have in the sector.
While many may feel that this is uniquely a South African problem, it isn’t. In fact, it is arguable that the situation is a bit better in South Africa than it has been internationally. Nerina Visser, Board Member of Chartered Financial Analysts (CFA) Institute South Africa, points out that significant ground had to be made up internationally.
The cost of the disconnect
The main thing fuelling the disconnect is the lack of trust consumers have with product providers in the industry.
“Investors who do not trust the industry are unlikely to save and invest for their future or achieve their long-term financial objectives. This creates a savings gap, which means that they spend a longer portion of their lives at work, they may possibly have to settle for a lower quality of life, and they experience intergenerational stress by living through the sandwich generation,” says Visser.
In an effort to try and resolve the disconnect, the CFA Institute and public relations firm 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.
One of the questions investors were asked was to indicate what attribute is most important when making a decision to hire a financial planner. The top answer was that the respondents felt they needed to trust that the financial planner will act in their best interest. The second highest answer was that they wanted the financial planner to achieve high returns and the lowest answer was the financial planner’s fee structure.
Putting investors first
We are all aware of Treating Customers Fairly and the effects that it will have on the industry. In an effort to improve the level of trust the public has with the financial services industry, the CFA Institute ran Putting Investors First Month in May.
The initiative aims to unite investment professionals in a commitment to place investor interests above all others.
“During the month of May, CFA societies around the globe organised several events and activities to raise awareness of this initiative. The initiative encourages personal commitment to BREAK ethical standards, a focus on the alignment of business practices in terms of governance and incentives, public awareness of investor rights and ongoing education and training,” says Visser.
These included the dissemination of information from the recent CFA conference which was held in Frankfurt, Germany. Presentations from the event were made available on the CFA website and webcasts were also arranged for those who wanted to listen to specific talks.
Know your rights
While there are no formal set of rights that a consumer can demand in the industry, there is a set of socially accepted rights that many companies abide by when it comes to providing financial advice, products and services.
Among these are:
- I have a right to honest, competent, and ethical conduct.
- I have a right to independent and objective advice.
- I have a right to my financial interests taking precedence.
- I have a right to fair treatment.
- I have a right to disclosure of any existing or potential conflicts of interest.
The list is extensive and the full list can be found on the CFA website. During Putting Investors First Month, the CFA encourages all companies to commit to the Statement of Investor Rights.
Best practice standards
In addition to the Statement of Investor Rights, companies are encouraged to follow a set of best practice principles set out by the CFA.
“Asset managers can demonstrate their commitment to investor rights more strongly by claiming compliance with the Asset Manager Code of Conduct. The code offers a single global standard for investor due diligence. The code also follows a principles-based approach which is also aligned with the outlook of the Financial Services Board,” says Visser.
Companies that have already committed to the code include BNP Paribas, Blackrock, the Canadian Imperial Bank of Commerce, valuation and corporate finance advisory firm Duff & Phelps as well as valuation and corporate finance advisory firm Morgan Stanley.
Editor’s Thoughts:
This is a good initiative and is a way in which we can try to build a greater level of trust in the industry. However, if a company commits to the code of conduct mentioned above, as well as the statement of investor rights, there needs to be an effective method of monitoring whether companies are abiding to what they commit to. Otherwise these efforts will make a limited impact on society. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
