As financial services industry scandals multiply, it appears increasingly naive for anyone to trust their banker or broker. Yet, trust is the lifeblood of functioning markets, and regulators and firms must do everything they can to rebuild it.

From the ongoing rate-rigging scandal to the revelation of widespread money laundering at one of the world’s biggest banks and the recent failure of futures firms that apparently plundered client assets, the global financial services industry increasingly is looking fundamentally corrupt.

While that may not be the case, clients could be forgiven for thinking it. Given that these latest scandals are coming on the heels of an enormous financial crisis and a massive recession that was precipitated in large part, by industry misdeeds – which have largely gone unpunished – it’s not surprising that the faith of investors has been severely shaken.

Industry self-confidence has taken a beating, too. Firms that are trying to behave ethically and put their clients’ interests ahead of their own are suffering collateral damage from these scandals. Which is why these firms must remain at the forefront of efforts to repair our industry’s image and rebuild clients’ trust. It is a challenge that demands fundamental cultural change and regulatory reform sufficient to drive such a transformation.

Yet, at a time when returns are hard to find, the natural instinct will be to retrench and do everything possible to preserve revenue and minimize costs. The temptation will be to resist reform at all costs. That may make sense if the goal is just to survive until tomorrow, but not if our industry is to thrive in the long run.

To prosper, our industry must evolve. And that means embracing measures that empower clients and restore their confidence that they can get a fair shake. This may include drastic steps, such as introducing statutory fiduciary duties, scrapping commission models and enhancing restitution mechanisms. Or, all of the above, together with tougher enforcement.

Embracing change of this sort won’t be easy, but the scale of the harm our industry has inflicted on itself now demands similar-sized reform if it hopes to restore its reputation.

© 2012 Investment Executive. All rights reserved.