Financial services providers agreed almost unanimously that the public doesn’t trust the industry, and they appear to be shouldering most of the responsibility for that lack of trust.
According to the CFA Institute’s Global Market Sentiment Survey, 63% of professionals — that includes portfolio managers, research consultants, advisors, consultants and C-level executives — said lacking an ethical culture was the factor contributing most to the public’s lack of trust in the industry. Sixteen percent put the blame on ineffective government regulations.
Just 4% of respondents said there was no trust problem in financial services.
Since the problem is within firms, the solution is as well, according to respondents. Over 30% said the best way to build trust with the public was to better align professionals’ compensation with investors’ objectives. The second most popular solution was for management to establish a zero-tolerance policy for ethical breaches.
What’s interesting is that financial professionals indicated they themselves had concerns about market integrity. Just 28% reported a positive outlook on that score. Insider trading was the biggest concern (25% said this was the biggest fraud issue facing markets).
Furthermore, few respondents think it’ll get better in 2015. In the most optimistic country, China, less than half said the integrity of global markets would be better in 2015 than it was last year. In the U.S., just 21% agreed.
Although financial professionals were largely in agreement that the public’s lack of trust was due to problems within firms, 28% said there was a need for better regulation and oversight at a global level to improve investor trust as well as market integrity.
“The survey suggests that the efficacy of policy responses to systemic risks in the financial system remains uncertain,” according to the report. “At least some members view policy initiatives with suspicion.” A third of respondents said increased bank liquidity requirements would likely have negative unintended consequences.
To prevent future crises, 68% of global respondents suggested better bank board risk management or requirements on banks to “impair troubled credit holdings on a more consistent and timely basis” (68%). Two-thirds suggested better risk disclosure and 67% said there needed to be more global coordination to monitor systemic risks.
Financial professionals believe the United States will be the best places to invest in equities in 2015, according to the report. Over a third of respondents said the U.S. would show the best equity market performance, up from just over a quarter last year. China, India and Russia were also top picks for 2015 performance.
However, respondents predicted very little actual movement in the stock markets this year. They predicted the S&P 500 would be up less than 5% by the end of this year, and that the Nikkei and EURO STOXX 50 would go up by less than 2%.
Overall, respondents were cautiously optimistic about the economy in 2015, estimating growth in the global economy would be just 2%. By comparison, the World Bank put the global growth rate at 3.4%. Respondents in the Americas, Australia and Asia were more pessimistic. However, the report found wide dispersion in expectations for the global economy versus local markets. For example, Chinese respondents put the global GDP growth rate at 2% while predicting local GDP growth would reach 6.2%.
“A majority of members look for economic recovery in Europe and China as a key to growth in their markets,” according to the report. “Of those surveyed, 71% of members indicated that the progress of recovery in Europe will have a positive impact on their local markets.”
The meager optimism for global growth is tempered primarily by fears of weakness in developed markets, the report found. Political instability and rising interest rates were also cited as risks to global markets, but across the board, weak economies in developed markets were the biggest concern.
Almost 5,300 CFA Institute members responded to the survey in October 2014. Respondents work in various positions in the financial services industry, with the majority, 20%, calling themselves portfolio managers. Twelve percent said they were a research analyst, while 6% said they were a consultant, financial advisor or C-level executive.
Respondents were also spread out across the globe. Over half are from the Americas (most of those are from the United States) and 30% are from Europe, the Middle East or Africa.
— Check out Time to Rethink FINRA: Mercatus Paper on ThinkAdvisor.