Strong ethics, better enforcement key to regaining investor trust

“When individuals lose trust and confidence, they basically get into a defensive posture,” he said. “We see this globally. We see people who are not interested in coming back into the capital markets as investors. They have to be coaxed and cajoled to have exposure to equity markets.”

Such investors will have trouble meeting their investment goals, Rogers said. In an environment of low interest rates, in particular, he said investors who refuse to invest in equities and products with higher rates of return may be forced to work longer than they planned in order to build up the portfolio they need to retire.

To convince clients of the need to get back into the market, the industry needs to focus on earning back their trust, Rogers said. In part, this means ensuring industry participants adhere to a strong system of ethical values.

In addition, he said education and qualification standards should be raised.

“Education is a cornerstone of properly functioning systems,” Rogers said.
“In too many markets around the world, individuals are able to basically practice investment management with a bare minimum of qualifications – far too low a level of qualifications.”

Regulatory enforcement must also improve in order to regain investor trust, Rogers added.

“The ability of regulators, be they self regulatory bodies or statutory bodies, to actually enforce the rules is very, very important,” he said. “In many major financial markets, there is a chronic underfunding of regulators, and a chronic underfunding of the enforcement arms of regulators, and that’s a problem that really does need to be addressed.”

Advisors also have a key role to play in rebuilding the public’s trust, according to Rogers.

“Financial advisors are literally the front line of the whole process,” he said. “They’re the people that clients call, they’re the ones that they put a human face to.”

As clients struggle to recover from the market downturn that wreaked havoc on their portfolios, advisors should ensure their clients completely understand the risks associated with investing, Rogers said. Remind clients that while short-term swings are common, the focus should be on the long-term.

“There needs to be as much time spent talking about risk as there is about return, so that people can get on the right page and the right mindset about what will happen over the client’s investment horizon.”

In addition, as financial products become increasingly complex, Rogers said advisors need to screen products with a higher level of scrutiny.

“They need to be good filters of new products coming down the road, in terms of the value for money aspect and the risk aspect,” he said.