Restoring trust in the funds management industry, through improved personal integrity, is mutually beneficial to the end investor and to funds management firms, a panel of industry participants said at a CFA Society lunch yesterday, launching the “Putting the Investor First” week.

Investor First Week is part of CFA Institute’s global Future of Finance initiative, which aims to shape a trustworthy, forward-thinking financial industry that better serves society. It aims to increase the awareness, reinvigorate and empower the world of finance to commit to fairness, improved understanding, and professional integrity.

The panel, which included Emilio Gonzalez, chief executive of BT Investment Management and Anthony Serhan managing director of research strategy, Asia-Pacific, Morningstar, and which was chaired by Colin Tate, chief executive of Conexus Financial, publisher of Investment Magazine, found that trust and governance were the two areas the local industry needed to address.

“I am a strong believer that you can’t legislate against bad behaviour,” Gonzalez said. “It comes down to having the right people. I don’t understand why organisations are not being tougher. One ingredient to winning business is trust.”

Serhan agreed that bringing individuals to account, rather than just corporations, was an important step in restoring trust, and that personal integrity was an important ingredient in the industry.

“How you cut through all of this and hold individuals to account is difficult. But it will be one of the biggest things to make a difference.”

Gonzalez believes ASIC, and all regulators, have a greater incentive to punish at the corporate level than the individual, but that corporates can survive and re-adjust. An individual can’t come back.

“Perception is reality. It often comes down to an individual’s own personal decisions, you can regulate some things but it often comes down to personal values. Words are cheap, the way you act is a bigger signal,” he said.

Answering a question from the floor Gonzalez said he would endorse the idea of funds managers signing a something similar to a Hippocratic Oath, and highlighted that the CFA Institute has the asset manager code of conduct, which will also be promoted as part of the Future of Finance campaign.

While there has been some progress in restoring integrity and trust in the industry, Serhan said there are still some obvious areas of improvement.

“I believe we are behind on some fundamental areas of transparency and disclosure. Transparency is an area where the industry is fighting not embracing change which means you’ll get a more expensive version of it, and portfolio holdings disclosure is an example of that.”

He also highlighted the Reserve Bank of Australia’s submission to the Financial System Inquiry and the role of “productive risk taking”.

“This industry is still about the appropriate level of risk taking, whether it be on the balance sheet of a corporation or to achieve an individual’s level of retirement income, and that’s where we need to do more work,” he said.



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