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.