Public trust in the financial and investment profession has decreased since the global financial crisis exposed weaknesses of controls, as well as profiteering. However, the industry is a necessary agent to reduce financial stress on societies through long-term investment management, says industry body Chartered Financial Analyst Society South Africa (CFA SA) analyst and board member Nerina Visser.
As people live longer and expenses increase, there is a growing savings gap between money set aside for retirement and the cost and duration of retirement, as well as associated medical expenses during retirement.
This increases the financial and mental stress on individuals and families and, hence, on society, also forcing people to work longer before they retire.
Governments worldwide cannot afford to plug this gap and a savings culture is required to resolve this social problem, which requires the financial and investment services industry.
“The social impact of more money being required to take care of retired people and stress-related illnesses, owing to increased demand on the wages of working-age people and leading to a lower quality of life for successive generations, is a significant foreseeable problem,” says Visser.
The financial industry, especially the investment industry, depends on trust, and if that is lacking, then the entire industry suffers and cannot achieve its purpose of supporting broader society, she emphasises.
To counteract this, the CFA worldwide has initiated a programme to anchor the industry in ethical behaviour, emphasising transparency and voluntary disclosure to clients. For example, CFA member companies agree to disclose any requests to clarify conflicts of interest to clients and communicate with them constantly to address any perceived risks or problems.
“The industry is already regulated to death. More regulation will not solve the trust issue, and self-regulation and a clear code of conduct are the most effective ways of improving ethics and trust in the industry,” says Visser.
The code of conduct also enables companies in the industry to put pressure on one another. It is a top-down model, whereby executives and leaders in the industry publicly adopt and champion these standards of ethics and hold one another accountable.
“Financial services and investment management are to the benefit of society, and companies must not lose sight of this social contract, as it will reduce the financial pressure families and governments face to fund a deficit between expenses and means,” concludes Visser.