The Sydney
chapter of the Certi­fied Financial Analyst Society held a discussion on
‘rebuilding trust in the investment industry’ last month, and members of its
employer advisory board were asked what ethical dilemmas they had faced in
their careers. Emilio Gonzalez, head of global eq­uities at Perpetual and past
president of the global CFA Society, did not have to think back too far for his
last curly one. “When the ban on the short selling of financial stocks came on,
it was clear there were ways around it.

You could use synthetics to achieve the
same out­come, it had the result that the regula­tors were trying to manage
against.” Students of the CFA exam learn that ethical behaviour means always
putting the interests of clients ahead of your own. Gonzalez admits that
skirting the short-selling ban might have had an im­mediate benefit for
investors, but “it was against the spirit of the law…and any risk that ASIC
will come knocking on your door is certainly not in your clients’ long-term
interests”. Meanwhile Michael Clancy, head of MLC’s investment management
division, had a debate with himself over whether MLC should offer protected
investment products.

Clancy could not satisfy himself that the provider of the
protection, which is punting its balance sheet on the deal, would always act to
protect the individual investor ahead of the strategy. “Unless there is a crystal
clear way of explaining the risks, returns and benefits of a product, the best
decision is not to do it,” he said.

Again, this might not have helped the
shareholders of MLC’s parent, Na­tional Australia Bank, in the short-term,
however Clancy said the interests of clients and shareholders were correlated
over time. Being an increasingly global body, one ethical issue the CFA Society
has to be careful with is the accepting of gifts. The Sydney Society’s current
presi­dent, GMO’s Olivia Engel, points out that refusal to accept a gift is a
highly offensive deal-wrecker in some cultures, so the CFAs are encouraged to
use their own discretion.