Unlocking Real Value Blog

The Ethics Disconnect

When it comes to ethics, there seems to be a pretty significant disconnect between investor perceptions of the financial services industry and those of industry participants. Advisors,  managers and sponsors who ignore this divide could be asking for trouble!

The above conclusion comes from two studies sponsored last year by the CFA Institute. One survey sought the views of a broad spectrum of financial services professionals, while the other focused on investors. While both groups view ethics as critical for the industry, part of the disconnect is that the professionals surveyed were far less likely to view their own firms as a source of distrust.

First the studies and results; and then some perspective. The industry study is entitled “A crisis of culture: valuing ethics and knowledge in financial services,” and was produced by the Economist Intelligence Unit (EIU). While 59% of respondents believe that the financial services industry has a positive reputation, 71% feel that the ethical reputation of their firm is better than the industry overall and that the actions of their peers was not as ethical as their own.

The survey of investors was entitled the “CFA Institute & Edelman Investor Trust Study,” and included more than 2,100 retail and institutional investors from all over the world. Only about half of those surveyed (52%) said that they trusted the industry to do what is right. Only 19% of respondents “strongly agreed” that they had a fair opportunity to profit from participating in the capital markets. (A majority felt that they had a “fair” chance of success.)

While these results are not surprising given the beating the industry has taken over the past 5 or so years, industry participants would be well advised to keep this disconnect in mind when speaking to prospects and clients. Acknowledge their discomfort and give them specific examples of what you do to be ethical, to always look after their interests AND how this benefits them and gives them a fair chance at success.

Neglect to do so at your own peril!

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