Rebuilding investor trust in the financial services industry will take time but it is an achievable goal if the right steps are taken, according to an expert panel speaking at the 2013 IFIE-IOSCO Global Investor Education Conference on Thursday.
“In terms of investor confidence that’s really the million dollar issue,” said Susan Wolburgh Jenah, president and CEO of the Investment Industry Regulatory Organization of Canada (IIROC) who spoke at the conference in Toronto.
“The [financial] collapse was really, at its core, a credit crisis and a banking crisis but it has a had a knock-on effect on all [industry] sectors and the road to that recovery in building investor confidence is not an overnight thing.”
Regulators cannot work alone in rebuilding trust, said Wolburgh Jenah. Instead, there also needs to be a commitment from industry members. Where regulators can help is to foster a culture of compliance and ethics through its training.
Says Wolburgh Jenah: “Building that foundation of ethics and aligning the interests of advisors with their clients is key to getting the right outcome.”
In fact, many individual advisors have already made that commitment, according to Wolburgh Jenah, by demonstrating they are there for clients. For instance, during the financial crisis many advisors got on the phone with their clients, said Wolburgh Jenah, and tried to help them walk through what was happening.
“If [clients] believe their advisor is on their side,” said Wolburgh Jenah “that is probably 80% of getting that confidence back.”
David Wright, secretary general, International Organization of Securities Commissions (IOSCO), believes the industry needs to take an even stronger approach in rebuilding trust with investors. Industry members who mis-sell products, do not properly define suitability or treat consumers unfairly, said Wright, should face very strict sanctions. “I think jail sentences are fully appropriate for the worst cases,” he said, “and I think it’s not used enough.”
In addition to more sanctions, Wright also believes that better disclosure of the real costs of financial products and more price competition in all markets are also key steps for re-establishing investor trust.
Similarly, Ranjit Singh vice chairman, IOSCO emerging markets committee and chairman of the Malaysian securities commission, also views fees and the compensation around products as possible hurdles to re-building investor trust. “The investor is always going to be short-changed,” said Singh, so long as the structure is in place that allows for strong incentives to sell particular products.