Action needed to rebuild public trust, investment industry leaders say

“I think we are still in the stages of restoring trust,” said Margaret Franklin, chairwoman of the CFA Institute. “[Clients] are reading about, in mainstream publications, the egregious breaches of ethics, the complete disintegration of trust. And it was not just in ‘08 and ‘09. It is still happening, and they are still reading it.”

Integrity, honesty and ethical behaviour are key to repairing this damage, the speakers said.

“The investment business is not a business of honesty; it is a business of rigorous honesty,” said Thomas Caldwell, founder and chairman of Caldwell Securities Ltd.

He urged industry professionals to remember to always act with integrity – even in tough times, when it can be challenging.

“If you lack integrity, it doesn’t matter how smart you are,” he said. “People are going to deal with people they trust.”

For financial advisors, integrity involves being completely honest with clients about their investment options and the risks they hold, Caldwell said. He finds that prospectuses and other disclosure documents are filled with “legal clutter” that doesn’t help investors understand the products.

“There’s very little clarity for investors,” he said. “It is very incumbent on the point-of-sale person or group to simplify and clarify what is critical in making a good decision.”

Franklin agreed that product disclosure is inadequate, especially at a time when products are becoming increasingly complex.

“How clients are supposed to be able to understand some of the documents they’ve got, it’s impossible,” she said. “We have to communicate with clients in a language they can understand.”

She added that clients are eager and willing to have honest conversations. But communication is not the only answer. She said the industry needs to go further by addressing the issue of overly complicated investment products.

“I think we do, as an industry, have the ability to deal with this complexity,” she said. “I don’t think we should be profiting from our clients’ ignorance.”

Franklin also suggested that the industry take steps to better educate its professionals. High standards of education and training will help to improve the image of the industry, she said.

In addition, she believes certain regulatory reforms could help restore public trust in the industry. Specifically, she calls for better enforcement, and for the government to move forward with its plans to establish a single national securities regulator.

“Even with a single national regulator, they are going to have a difficult time keeping up with complex instruments, with the way the world is changing,” she said. “How you can effectively do it in a fractured environment is beyond me.”