Any debate on investor ethics in the financial services industry must first recognise that all monies in the system are only lent in trust to the industry, not owned by it, was the position that the CFA Societies Australia has lead with as part of its ‘Putting Investors First’ month.

The issue of investor trust was examined in the context of findings on industry ethics and professionalism sourced from the CFA’s ‘From Trust to Loyalty: a Global Survey of What Investors Want’, at an event in Melbourne.

The survey data showed that Australian retail investors rated ethical standards as more important than their global peer group (75 per cent versus 69 per cent) while showing that their trust in financial services remained below their global peer group across all sectors. The survey also found that Australian retail investors believed that their opportunity to profit by investing in capital markets had declined compared to global peers. 


Whose money is it? Respect investors as owners of the funds 

Kicking off the event in Melbourne, moderator Graeme Bibby, president of CFA Society Melbourne and chief investment officer of AIA Australia said putting the investor first was critically important because investing is, and always has been, deeply personal.

“Investment is about people and behind every investment transaction, there is an individual whose hopes and dreams depend on this capital,” he said. “Any debate on improving ethics, building trust and raising standards of professionalism must begin and end by acknowledging the investor’s ownership of the money.”

On the panel discussing trust were Mark Delaney, deputy chief executive and chief investment officer at AustralianSuper; Dr David Knox, senior partner and senior actuary at Mercer Australia; and Kate Temby, co-head of institutional sales in Asia Pacific Ex-Japan at Goldman Sachs Asset Management.

Delaney noted that any discussion on investor trust could only be had by an industry whose culture fundamentally acknowledged investors as the source of all money in the system.

“There’s a view in some areas that industry owns the funds it invests and manages,” he said. “This couldn’t be more wrong. As an industry, our role is that of a fiduciary to whom the funds are entrusted; our investors, or in the case of superannuation, our members own the money and delivering their outcomes is what fundamentally matters.”


Address the whole value chain 

Panellists also noted that ‘other people’s money’ rule extended across every discipline along the length of the industry value chain.

“At present, there is a lot of focus on only specific sections of the chain in terms of industry professionalism, when in fact it applies to the entire investment production line as does the opportunity to improve industry standards and build trust,” Delaney said.


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Choose trustworthy partners 

Trust within the value chain itself was also seen as an essential component to delivering better outcomes for investors.

According to Delaney, trust was also an underlying feature of all industry transactions.

“Industry partnerships crucially look at who actually manages the money on behalf of the investor.

“This important process must be guided by three key questions: how do they make money; is it the right time to buy; and finally but most importantly, can they be trusted?”

Knox pointed out that the partnership also extended to the importance of ensuring clients understand the distinction between quality, price and outcomes.

“Transparency is important, but it’s also important that when we are disclosing fees, we are explaining what people get from that. My concern is always that if we are trying to drive the lowest prices then clients will not necessarily get the best outcome.”


Improve behaviours through stronger enforcement, not more regulation 

From a regulatory perspective, panellists agreed that perception wise one bad player created contagion risk across the entire industry.

Knox said the mandated nature of super made most Australians investors, creating the argument that regulators should go harder on superannuation than elsewhere in the world.

“In other countries, super is not mandatory and a tougher enforcement would just drive employer sponsors and providers out of the system; here the Government wants to reduce long term age pension costs and has to protect the long-term viability of the system. It has make it work for members.”

“The industry isn’t considered a profession like doctors or lawyers where if someone behaves inappropriately, they’re struck off thereby incentivising them to behave. Stronger enforcement is the answer, not more regulation,” Mr Delaney said.


Create a profession, strengthen credentials 

Temby said high standards of professionalism ensured there was the integrity behind all industry negotiations that was operationalised by strong judgement and behaviours.

“Ethical behaviour is inseparable from integrity and good judgement,” she said. “There’s a nervousness within industry around the idea of professionalism but we make decisions and act on behalf of others and we need appropriate measures like other industries to assure good governance.”

According to Bibby, CFA was focused heavily on building strong cultures based in high standards of competency and compliance right across the industry value-chain.

“Our aim is to partner with like-minded members of the financial services community who share our goal of building and sustaining an industry culture worthy of the investors who entrust us with their money. That means looking at the issue from an industry, organization, business unit and individual level; only this approach will build such a culture.”


Communicate clearly and often, using a mix of channels to suit investor profiles 

Knox pointed out that the nature of investor communications had changed dramatically over the past ten years.

“Financial crashes and milestones like the Federal Budget are times when the industry really needs to be stepping forward and comforting investors. The Budget in particular is often contentious in the superannuation space and funds have to be very quick to provide comfort and information to members that makes sense to them and clearly articulates what it really means for them. For example, in the recent budget most people won’t be affected immediately, and this is a really important message to articulate,” he said.

“Not many people read a paper statement anymore so we have to think about how we communicate with our investors in a simple but regular manner.”

Delaney noted that there are two kinds of investors; typically, they are either really engaged or only want to engage in a time of uncertainty.

“When the market dips, they often look around for an explanation. By communicating with them, we can stop knee-jerk reactions which may result in them losing money. If we build up the trust between us and our investors they will listen to us.”

The second in the series of CFA’s ‘From Trust to Loyalty: a Global Survey of What Investors Want’ events as part of ‘Putting Investors First’ month will take place in Sydney on 25 May.


Sue Morey is the Head of Advocacy at CFA Societies Australia and New Zealand

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