Ethics Vital to Boost Investor Confidence in Financial Sector
BYLINE: Andrew Canter
The level of investor confidence in the financial services sector indicates that something serious must be done to rebuild trust. Creating a platform for a variety of ethical voices to be heard may be a start.
Money is stacking up under the proverbial mattresses. Investments and asset management require trust and trust depends on ethics.
Research polls show more than 53 percent of retail and institutional investors do not trust their asset managers to do the right thing with their money. This is a staggering indictment of our profession.
Trust has been eroded by a number of factors. Not least of these is the recent financial crisis and the excesses it exposed, self-dealing and agency management issues. Investors are concerned that the financial "wizards" have made money management too complex; that asset managers are trying to squeeze excessive margins from them or are taking fees in undisclosed ways.
South Africa has an excellent regulatory framework for the financial services industry. The introduction of financial exams and improved screening of financial managers will go a long way towards allaying some of those fears. The macro prudential and regulatory oversight of our economy from a financial viewpoint is world class and on a par, if not ahead, of the rest of the world.
The Reserve Bank and the Financial Services Board (FSB) have put regulations in place to police the industry. The regulatory regimes and accreditation procedures are good and pragmatic. But rules can only go so far, and the critical buttresses are an ethical framework and fiduciary culture.
They say that in the financial services industry "learning is cyclical not cumulative". Finance professionals repeat the mistakes of their predecessors. In science you are standing on the shoulders of giants where one discovery leads to better discoveries, but in finance each generation must re-learn the lessons of the past. Likewise, business ethics is not something we teach in the hope of improving knowledge; it is something that must be taught and re-taught over and over to build and retain trust in the financial community.
So, as we go through the normal cycle of business, we witness ethical breaches all the time. …