The recent global financial crisis did more than ravage investment portfolios, wipe out employment and force people out of their homes. It also obliterated trust in the financial services industry by the people who use it most – investors.
A new international study says a mere 53 per cent of investors in the United States, United Kingdom, Hong Kong, Canada and Australia have faith in investment firms. What’s more, the investors surveyed around the world said they have less respect for the financial services and banking industries than in other sectors such as telecom, consumer goods and pharmaceuticals.
It appears the “Too big to fail” period in recent history has created a lack of global confidence in the industry that handles our money.
“Hit by the shock of the 2008 financial crisis and ongoing scandals around money laundering, rogue trading, rate manipulation and insider trading, the industry lost the faith of its key constituents – the clients, investing public and other participants that help it function on a day-to-day basis,” says the CFA Institute/Edelman Investor Trust Study.
Investors in the United Kingdom turned out the most skeptical, with only 39 per cent saying they trust the industry that handles their investments. That compares with 44 per cent in the U.S. and 68 per cent in Hong Kong (no specific number was given for Canada).
While trust in the investment industry is lacking, investors appear to have more faith in the free market, even as they watch their portfolios rise and fall. The survey says about three out of every four investors are optimistic about their ability to earn a fair return on the market.
That said, only 19 per cent said they “strongly agree” that they have a chance of making a profit by putting their money into the market.
And while hard-core capitalists would argue government should have a minimal role in capital markets, the survey shows a different point of view from investors.
It says 52 per cent of investors believe both national and global regulators have the biggest role to play to build trust and effect change, more so than investment management professionals (28 per cent) and investment management firms (13 per cent).
"By focusing only on performance-centric standards, the industry is missing opportunities to build trust," said Kurt Schacht, managing director, standards and financial market integrity at the CFA Institute. "Investors indicate in this study that they want a culture shift - a renewed focus on ethical behaviour. Individual investment managers must be transparent, demonstrate integrity, and communicate clearly to strengthen client relationships and preserve trust in the industry and the markets at large."
The results are based on a poll of taken in early June among 2,104 retail and institutional investors in North America, Europe, Asia and Australia.