by Jesse Anderson, CFA
The CFA Institute recently published “The Integrity List: 50 Ways to Restore Trust in the Investment Industry.” Wall Street has received a lot of bad press in the recent years. Whether it was the creation of destructive financial instruments, large bailouts, or a ‘failed’ Facebook IPO, Main Street has many reasons to feel upset. The root of many of these problems is the lack of understanding and education from the retail investor. Clearly, there was a fair share of people and companies who acted inappropriately, but too many other organizations and industry participants were categorized along with a small minority.
As a member of the CFA Institute and a CFA charterholder, I appreciate the work the organization does to promote ethical behavior. The CFA Institute has over 100,000 members globally with a mission to lead the investment profession by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society. To qualify to become a charterholder, individuals must pass three sequential exams, complete the required years of experience, and adhere to a strict code of ethics. It is recognized globally as the gold standard investment credential.
In coordination with celebrating 50 years of the CFA Charter, they published 50 Ways to Restore Trust in the Investment Industry. Although all 50 are important to the advancement and restoration of trust within the investment profession, I will recap my top 5 you should require of your financial advisors and/or investment professional.
1. Place the client’s interests before you own.
Acting with a fiduciary responsibility should be a must within the investment industry, yet not all professionals are required to uphold this standard. Avoiding conflicts of interest and putting clients’ interests first will go a long way to improving the reputation of the entire industry.
2. Act with integrity 24/7 – not just at the office.
Trust and integrity are a way of life, not just standards to uphold from 9 to 5.
3. Base investment recommendations on strong analysis.
Too many “investment recommendations” are product sales and commissions oriented. Investments should match your objectives and risk tolerances. Don’t be fooled by a good salesman and fancy marketing material. Make sure the investment matches up with your investment objectives.
4. Help clients focus on risk as much as they do on performance.
There are two sides to the investment coin, risk and reward. Both sides should be evaluated. Investors should seek the minimum level of risk for their required level of performance.
5. Disclose your educational achievements and how you improve professional competence.
Investment professionals should seek knowledge beyond their college degree and the minimum securities license exams required by regulators. We live in a world that is constantly changing and evolving. Staying up-to-date through continued education is a must within the investment profession.
The majority of investment professionals are honorable, well-educated practitioners. However, we all know how easy it is for a few bad apples to ruin the whole bunch. It is our job to continue to uphold the highest of standards, and the client’s job to seek it out and require it. Through things like the Integrity List and reputable organizations like the CFA Institute, Wall Street and Main Street can once again build the strong relationship required for successful investments.