Doing the right thing
At the occasion of the 10th anniversary of the CFA (Chartered Financial Analyst) Society Luxembourg, Frédéric P. Lebel, CFA, member of the Board of Governors of CFA Institute, presented the “Future of Finance” initiative. In an interview with LFF, he spoke about this ambitious project, the finance industry’s global efforts and the rights of investors.
What is the “Future of Finance” project about?
The financial crisis of 2007/2008 had a huge impact on financial markets but also on the global economy. Twenty million jobs were lost worldwide and it cost 20% of annual global GDP. People were impacted in their daily lives and many continue to suffer from the consequences of the crisis. After engaging with a great deal of our members and volunteers globally as well as various other stakeholders, the Future of Finance initiative was launched and approved by the Board of Governors of CFA Institute. The ambitious goal of this project is to shape a more trustworthy financial industry that better serves society.
Is the project about shaping the finance of tomorrow or only about gathering ideas?
It is indeed about shaping the finance of tomorrow by restoring trust in the industry and ensuring a better functioning. This is a global and long-term effort though and, to that end, we have identified six areas of focus. The first one is Putting Investors First. Here our “Statement of Investor Rights” is a first concrete deliverable. We do have a strong view on the need for Financial Knowledge. To than end, we launched Claritas as our latest certification a few weeks ago. We think that Transparency and Fairness is part of the Future of Finance too as well as Regulation and Fairness.
Finally, we believe that Retirement Security and Safeguarding the System are also two important areas of focus for this initiative. We have in mind to address these areas with a varied group of stakeholders including the providers, users and traders of capital, authorities and regulators but also intermediaries, portfolio managers and analysts. Media is important too, as it relates to a wider audience, as well as academics and other sources of education providers.
Have investors become more knowledgeable when it comes to investing?
We realize that people were shocked and very disappointed by the crisis. They may however not react by seeking additional education with respect to investing. Hence, we are concerned that some do not look for qualified and ethically engaged advisors to help them achieve their financial objectives. Finance is an attractive business and it has low barriers to entry. It is unfortunate too that the educational requirements to be active in financial services are fairly low or even, at times, inexistent.
At CFA Institute, we think that only people who are properly educated and abide by a Code of Ethics should advise clients. You would not go to a doctor, who is not a certified medical doctor. We note that finance could be practised without any qualification at all; this should be a source of concern.
What is a remedy to that trend?
We think we have a solution with the CFA charter, which provides both extensive education as well as a strong commitment to ethical behaviour. Now, for each financial decision-maker, who may be a CFA charter holder, there are on average nine other people supporting her. These nine people tend to be specialists in other fields but have a somewhat limited knowledge of the financial services industry. Therefore, we have launched Claritas, a certification, which provides education on the fundamentals of finance and on the ethical framework that should be in everybody’s mind when dealing with clients’ money.
What does a CFA charter holder have to do when he is in a dilemma and torn between his employer’s interests and those of his client?
He has to do the right thing. This certainly can lead to tensions and prove, at times, even frightening. However, one has to think long-term. How committed could one be anyway to an employer, who requires from us to not respect our clients? As a CFA charter holder, you sign your professional conduct statement each and every year. This is a strong reminder that your code of ethics is really the code you should live and abide by. It is a shield.
We hope to bring the dilemma you are mentioning to an end by having firms adopt the Asset Manager Code. To some extent, this code is the corporate version of our Code of Ethics. Rather than create a conflict between my personal ethics as a CFA charter holder and the one of my employer, we strive to align them.
Do ethical behaviour and a solid return on investment go hand in hand?
Not always so unfortunately, yet the contrary is pretty much a given! However, whatever return has not been made by investors has probably been partly lost to a series of intermediaries, who failed to deliver needed or relevant services. We think that a number of activities may possibly lose relevance in the future of finance. Generally speaking, we believe that short termism has not helped clients at all.
At the end of the day, clients seek to achieve the rate of return, which will help them meet their goals. The process of defining objectives and constructing portfolios can best be served by hiring competent, well-educated, honest and dedicated advisers, who will of course be compensated for that. Clients and advisers who think along these lines can find great terms to work together. CW