How do you even begin to fix a financial crisis that cost at least US$12 trillion and wiped out 20 million jobs?
This is the task that the Chartered Financial Analyst (CFA) Institute has taken on, unveiling a a six-step solution drawn up by an advisory committee under the the leadership of Professor John Kay, visiting Professor of Economics at the London School of Economics, and one of Britain's leading economists. The other members include heavy-hitters such as Paul Chow Man-yiu, former head of the Hong Kong Exchanges and Clearing and CEO of HSBC Asset Management’s Asia-Pacific region; Elizabeth Corley, CEO of Allianz Global Investors and Barbara G Novick, vice chairman of BlackRock among others.
John Rogers, the CFA Institute's president and CEO, today announced The Future of Finance its annual conference, being held in Singapore - and Asia - for the first time. Rogers described it an "ambitious" project that has been formulated "to shape a more trustworthy financial industry that better serves society". The project is being rolled out to the wider financial industry, beyond the institute's 110,000 members around the world, as part of a bid develop new standards and restore public trust in the sector.
The Future of Finance comprises six key themes, and Rogers urged CFA charterholders to implement them as a matter or urgency within their firms and communities.
1. It's about the investors, not the individuals
The Institute has distilled a Statement of Investor Rights to help the public understand what they can expect in return for their business. Ten 'commandments' have been identified, with the most important, arguably, being that a client's financial interests always take precedence over those of a firm or advisor. "We would be in a whole lot better shape as an industry if just this one rule was followed consistently," said Rogers.
2. Back office staff need educating
Investment must be made in raising the levels of financial knowledge among those who support investment decision-makers. The CFA Institute says there are about nine supporting roles for every one held by an investment decision-maker. "Raising this group's knowledge of the fundamentals of finance and the ethical framework needed to satisfy clients is a critical need."
3. Restore trust in pension funds
Government and corporate sponsored retirement plans account for over US$30 trillion in assets, generating about $87 billion in fees annually. But the public remains suspicious of financial markets in the aftermath of the financial crisis and this, combined with other issues, such as low interest rates, has dissuaded people from investing for retirement. The financial industry needs to "champion clear standards for sustainable retirement savings systems".
4. Convince investors that capital markets aren't rigged
Man-on-the-street investors believe that capital markets are rigged against them. To address this issue, the Institute has developed the Principles for Investment Reporting to ensure clear, trustworthy investment reporting.The principles include insisting on proper and adequate communication between the author of an investment report and its users about its function and necessity, and making sure that control processes, policies, and procedures are documented and followed.It's also essential to reflect client preferences in any investment report, provide a clear and transparent presentation of investment risks and results, and detailed fee disclosures.
5. Give financial regulators some bite
Not enough of the unethical - and possibly criminal acts - that marked the global financial crisis led to prosecutions and convictions, largely due to the unfortunate reality that securities enforcement agencies are often understaffed and out-done in bringing cases of financial fraud. This is compounded by chronic weaknesses in regulatory and enforcement systems. The financial sector needs to identify and promote the key elements that protect investors and ensure the integrity of financial markets. For example, the Securities and Exchange Commission is about to review the agency’s policy of letting companies and individuals settle charges without admitting or denying wrongdoing.
6. Don't expect another handout
The industry needs to get its house in order because the taxpaying public will not stand for another round of bailouts. "If we cannot control ourselves as an industry, then angry voters and their elected leaders will certainly re-regulate finance to the status of a utility."