Reference material which may be of interest, but are not otherwise sited in this paper: 11
Appendix – Advisory Council members 13
About the Initiative
The future of finance starts with you.
This initiative is born out of the objective for the CFA Institute: To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.1
In pursing this, we seek to work with other like-minded professionals in the financial industry.
The global financial industry can be an extraordinary force for good, helping to solve problems, ensure the well-being of nations and achieve the goals of society. But there is much work to be done to shape a more trustworthy, forward-thinking financial industry for future generations. The time has come for an ambitious reinvention of the system, but we need your help. We all have a role to play in the future of finance.
What is the Future of Finance initiative?
Led by CFA Institute, the Future of Finance initiative is a long-term global effort to shape a trustworthy, forward-thinking financial industry that better serves society. It aims to provide the tools to motivate and empower the world of finance to commit to fairness, improved understanding and personal integrity.
Current status of the Future of Finance2
This is a long-term initiative that was established in early 2013. To date it has delivered the Statement of Investor Rights and the Principles for Investment Reporting. Other elements of the initiative have been drawn from work previously undertaken by the CFA Institute, such as Global Investment Performance Standards (first established in 1987) and more recently, the Asset Manager Code of Professional Conduct and the Pension Trustee Code of Professional Conduct.
In Australia, we have formed a permanent taskforce to continue to work towards a better future of finance. Last year, we employed an advocacy exponent to assist in delivering meaningful insights and to better connect with regulators and other interested bodies. We have commenced round tables with asset managers, super funds and advisers to seek their views and to influence industry standards. We have engaged more with regulators and, for example, we’ve contributed to the Financial System Inquiry. Most recently, in May 2014, the CFA Societies Australia initiated a speaking tour by Michael Woodford to further the discussion on Investor Rights and followed this up with a series of media engagements.
To assist in raising raise awareness and inform views, we’ve created the CFA Societies Australia website so as to distribute a wealth of insights; mostly global and regional, plus a number of local perspectives as well. These are freely available to anyone at http://www.cfa-australia.com.au/. And that site will also take you to the international CFA site which has more information available.
Future of Finance Advisory Council
The advisory council provides oversight for the Future of Finance project and offers independent and strategic advice to CFA Institute staff on the project’s six areas of focus. Led by John Kay, the advisory council is comprised of a diverse group of experts from finance, education, and media.
Please see the appendix for an outline of each member of the Advisory Council.
The current components of this initiative
Currently this initiative is made up of 6 components:
Putting Investors First - The fiduciary duty to protect investor interests.
Financial Knowledge - Empowering investors to make better decisions.
Transparency & Fairness – Standards to promote an open and honest financial system.
Retirement Security - Sensible solutions for sound pension (superannuation) systems worldwide.
Regulation & Enforcement - Protecting investors and preserving capital market integrity.
Safeguarding the System – Promoting stability and minimizing systemic risk.
Putting Investors First
The fiduciary duty to protect investor interests
Putting Investors First Week
In May 2014, CFA Societies Australia and New Zealand invited Michael Woodford for a speaking tour across Perth, Sydney, Melbourne and Auckland. Michael had been a 30 year veteran of Olympus, he had been newly-appointed as global president and CEO, but soon discovered a massive accounting fraud, approaching $2 billion. The decisions he makes at the end of 2011 leads to the exposure of the scandal, the crash in the share price, the entire board’s resignation and it is still playing out today with legislative changes in Japan, legal matters in the UK and, for example, the Economists crediting Michaels’ whistleblowing to highlighting a continuing governance issue in Japan.
The purpose of the Michael Woodford speaking tour was to highlight governance and the cost to the end investor, and to also act as an introduction to the following week. In the following week the Societies issued a series of media releases, accompanied with media interviews, to highlight particular issues impacting investors. This resulted in good media coverage across, for example, the AFR, SMH and a number of industry media outlets.
Statement of Investor Rights
This serves as advice to investors of the conduct we believe they are entitled to expect from financial services providers:
Investors: Present the Statement to your financial professionals, whether you are establishing an investment plan, working with a broker, opening a bank account or buying a home.
Financial Professionals: Support the Statement and provide it to your clients to show that you are committed to fundamental ethical principles. Let your clients know that they can trust you to provide the service they expect and deserve.
When engaging the services of financial professionals and organizations, I have the right to…
1. Honest, competent, and ethical conduct that complies with applicable law;
Globally, financial laws and regulations differ, but all investors have the right to honesty from financial professionals. Honesty does not just mean a truthful answer to your questions; it also means transparency and forthrightness on the part of the financial professional.
Ideally, the financial professional should give you all the information that affects the financial decisions you make as well as the information that pertains to the financial decisions made on your behalf.
2. Independent and objective advice and assistance based on informed analysis, prudent judgment and diligent effort;
Financial professionals must base decisions on:
Thorough discussions with you about your needs and circumstances.
Thorough analysis of your needs and circumstances.
Thorough analysis of the products and services that may be used to meet your needs.
Carefully considered and supported judgments that match products and services with your needs and circumstances.
3. My financial interests taking precedence over those of the professional and the organization;
As the owner of the money or the assets in a financial transaction, your welfare must be considered before the welfare of the financial professional and his or her organization. It is through outstanding work and service to your interests that financial professionals earn your trust and continued business. Your money is paying the bills and salaries of these professionals, and your interests need to come before their personal interests.
4. Fair treatment with respect to other clients;
Fair treatment is not always equal treatment, particularly regarding all of a financial professional’s clients. For example, other clients may have different objectives and different risk tolerances, resulting in investment portfolios that are very different from your own. You should not consider it unfair treatment when another client with a riskier portfolio earns higher returns or when another client’s less risky portfolio performs better when financial markets decline.
Fairness also means that you should not feel pressured or rushed to make financial decisions.
5. Disclosure of any existing or potential conflicts of interest in providing products or services to me;
Advice from a financial professional should be based solely on the benefits to you, your financial circumstances and your financial goals; advice should not be based on a financial professional’s personal interests. All financial professionals have an interest in being paid for their work, so you should always ask how the financial professional is paid (e.g., commission, flat fee, etc.) to ensure that his or her personal financial interests are closely aligned with your own.
A financial professional must clearly tell you about any existing or potential conflicts of interest. Because conflicts of interest are not always avoidable, that information must include not only what the conflicts of interest are but also the steps taken to reconcile them in your best interests if they cannot be avoided.
Common examples of potential conflicts of interest include:
Being compensated for sales, not performance. Financial professionals are often not compensated based on how your investments perform but on how many investments they have sold to you or how much money you have invested with them.
Selling higher-paying financial products instead of nearly identical but cheaper products.
6. An understanding of my circumstances, so that any advice provided is suitable and based on my financial objectives and constraints;
Financial professionals must base decisions on facts directly relevant to your financial circumstances, needs and goals. Financial advice should feel comfortable to you, and if it does not, you have the right to question financial professionals so that you understand how their advice fits you and your circumstances. The best way to make sure that you understand the advice being given to you is for the financial professional to put the plans created for you in writing. This plan is commonly known as theInvestment Policy Statement. If you do not have an investment policy statement, ask the financial professional to create one. If you are just starting a relationship with a financial professional, then make sure that you and the financial professional create one together. 7. Clear, accurate, complete and timely communications that use plain language and are presented in a format that conveys the information effectively;
To understand the performance of a financial product, whether it is a checking account, life insurance policy, mutual fund, or another product, you must be able to understand the information provided by the financial professional or firm. Thus, you must receive communications — electronic, written, verbal, or otherwise — that make sense to you. If you do not understand the information given to you, you have the right to ask questions, request an explanation and delay agreeing to the advice until the information is made clear. 8. An explanation of all fees and costs charged to me and information showing these expenses to be fair and reasonable;
You have the right to fully understand the expenses you are paying for investment services and products. This is true even if your financial product is as simple as a checking account. Financial professionals should be able to:
Show that the fees you are paying are based on the same fee schedule as for all other clients who are similar to you.
Show that you are not paying more than other clients with accounts of similar size.
Share information about the fees and costs charged by competitors offering similar products, if such information is publicly available.
9. Confidentiality of my information;
You have the right to privacy of your personal and financial information. Only financial professionals and their staff directly involved in the investment decision-making or reporting processes should have access to your personal and financial information. Furthermore, your personal financial information should be disclosed to others only if it is required by law, such as through a subpoena, or by a regulator with lawful jurisdiction. 10. Appropriate and complete records to support the work done on my behalf.
Financial professionals working on your behalf must document and make readily available to you:
All information given to you.
All products discussed with and offered to you.
Any decisions that have the potential to affect or have affected your finances (including decisions in which you say no to the product or advice).
A current perspective of the level of investor trust
The CFA Institute & Edelman Investor Trust Study surveyed over 2,100 retail and institutional investors in the United States, United Kingdom, Hong Kong, Australia, and Canada, and finds that while a slim majority of respondents trust investment managers, the level of trust is fragile.
A well-received annual survey of CFA members (nearly exclusively charterholders) that gauges their outlook on financial markets, integrity and performance. The most recent of which can be found at Global Market Sentiment Survey 2014.
Transparency & Fairness
Standards to promote an open and honest financial system.
Principles for Investment Reporting — Five basic principles about standards of communication and transparency, created to facilitate a dialog between financial services providers and their clients.
Global Investment Performance Standards — A set of standardized, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to prospective clients.
Sensible solutions for sound pension (superannuation) systems worldwide.
Pension Trustee Code of Conduct
CFA Institute encourages pension plans to adopt the voluntary Code of Conduct for Members of a Pension Scheme Governing Body. By adopting the Code, you are establishing an ethical framework for governing board members and showing your commitment to the best interests of pension participants and beneficiaries.
Who Should Adopt the Pension Trustee Code?
Pension (superannuation) schemes administrators
Plan participants and beneficiaries should ask their pension (superannuation) scheme managers to comply with the Code.
Essentials of a More Secure Retirement — Key principles and practices to help you reach your retirement goals.
Spend 50% on necessities, 30% on enjoying the present, and save 20% for the future.
Have at least double the largest surprise expense you've recently encountered in cash, and work toward having six months' expenses.
If your employer offers a match on your contributions, contribute at least enough to receive it. The match is essentially an investment with a guaranteed rate of return.
Keep your lifestyle constant so that your raises accrue to your retirement savings, not your expenses.
Life Annuities: An Optimal Product for Retirement Income — A summary of research on life annuities, longevity insurance, and their role in the "optimal" retirement portfolio.
Should Retirement Savings Be Mandatory? (Forum) — An online discussion where the panelists tackle a quest with huge implications for millions of future retirees, global policy makers, and the future of finance itself.
Regulation & Enforcement
Protecting investors and preserving capital market integrity
Elements of Effective Regulation
Position: Key elements for an effective regulatory system include:
Underlying principles for regulation and enforcement that are consistent for similar transactions and activities.
Regulators who possess the requisite experience and in-depth knowledge of capital markets and the roles and activities of market participants.
A market system with sufficient flexibility to respond rapidly to changes.
A central market system with sufficient regional representation to ensure sensitivity to emerging niche markets and small-and-medium-sized businesses.
A system that is cost-effective in terms of fees, compliance costs, and other burdens imposed on registrants, issuers, and investors.
Adequate governance to assure objectivity, appropriate independence, and accountability to the government.
Rationale: These elements seek qualified and fair-minded regulators that oversee markets that can react and evolve in ways that enhance investor interests.
Self-Regulation in the Securities Markets: Transitions and New Possibilities — A collection of codes, standards, and position papers.
Safeguarding the System
Promoting stability and minimizing systemic risk
Central Banks and Systemic Risk (Online Forum) — An online discussion considers the perennial question of whether or not central banks add to, or detract from, systemic risk.
Reference material which may be of interest, but are not otherwise sited in this paper:
Code of Ethics and Standards of Professional Conduct
John Kayis a distinguished academic, economist, and businessman, an adviser to companies and governments around the world, and an acclaimed columnist. His work has been mostly concerned with the application of economics to changes in industrial structure and the competitive advantage of individual firms. Professor Kay writes a weekly column for theFinancial Timesand is a visiting professor at the London School of Economics. Previously, he served as research director and as director at the Institute for Fiscal Studies, director of SaïdBusinessSchool at the University of Oxford, professor at the London Business School and the University of Oxford, founder of London Economics International, and director at Halifax Plc. Professor Kay is the author of several books, includingThe Long and the Short of ItandObliquity.In 2013 he was made a Commander of the Order of the British Empire for his contribution to economics. He was educated at Edinburgh University and at Nuffield College, University of Oxford, and was awarded an honorary DLitt degree by Heriot-Watt University.
Keith Ambachtsheeris director of the Rotman International Centre for Pension Management (Rotman ICPM), an adjunct professor of finance at the Rotman School of Management at the University of Toronto, academic director of the Rotman ICPM Board Effectiveness Program, and publisher and editor of theRotman International Journal of Pension Management. Previously, he founded KPA Advisory Services Ltd, which provides strategic advice on governance, finance, and investment matters to governments, industry associations, pensionplansponsors, foundations, and other institutional investors around the world. Mr. Ambachtsheer also co-founded CEM Benchmarking Inc., which monitors the organizational performance of pension plans around the world. He has authored three books on pension management and has received pension industry awards for his work in Europe, the United States, Canada, and the Pacific Rim. Mr. Ambachtsheer recently served as board chair of the Princess Margaret Cancer Foundation and continues to serve as a member of two corporate boards.
Paul Chow Man-yiuis a retired finance industry executive. In 2013, he retired as chairman of Plan International Hong Kong and from the position of member and treasurer of the Council and Court of the University of Hong Kong. He has served as chief executive and executive director at the Hong Kong Exchanges and Clearing Limited (HKEx). Prior to his work with HKEx he served as chief executive for the Asia-Pacific region of HSBC Asset Management (Hong Kong). Mr. Chow also worked in executive roles with theStockExchange of Hong Kong and Hong Kong Securities Clearing Limited. He holds a BSc in mechanical engineering, a diploma in management studies, and an MBA from the University of Hong Kong. Mr. Chow also received a diploma in finance from the Chinese University of Hong Kong.
Elizabeth Corley is CEO of Allianz Global Investors, a globalasset managerwithin Allianz’s asset management division. Previously, she worked at Merrill Lynch Investment Managers and as aconsultantand partner at Coopers & Lybrand. Mrs. Corley has been named Most Influential Woman in Asset Management, CEO of the Year, and Most Influential Person in Asset Management byFinancial News. She is a non-executive director on the Financial Reporting Council, an Advisory Council member of TheCityUK, and a member of TheCityUK International Regulatory Strategy Group Council. Mrs. Corley holds a post-graduate diploma in management studies.
Tom Keene, CFA
Tom Keene, CFA, is an editor-at-large at Bloomberg News and host ofBloomberg Surveillance, Bloomberg’s morning program for economics, finance, and investment. He also founded the Chart of the Day column, available on the Bloomberg Professional Service, and is editor of the bookFlying on One Engine: The Bloomberg Book of Master Market Economists. Mr. Keene is a member of the National Association for Business Economics, the American Economic Association, and the Economic Club of New York. He is a graduate of Rochester Institute of Technology.
Andrew W. Lo is Charles E. and Susan T. Harris Professor of Finance at the MIT Sloan School of Management and the director of MIT’s Laboratory for Financial Engineering. He focuses his research on the fundamental aspects of investments and financial markets, including the measurement of illiquidity risk in hedge fund returns, the growth of systemic risk in the hedge fund industry, and most recently, evolutionary and neurobiological models of individual risk preferences and financial markets. Before joining MIT’s finance faculty, Mr. Lo taught at the University of Pennsylvania’s Wharton School. He has published numerous articles and books on finance and economics. Mr. Lo received his PhD in economics from Harvard University.
Ira M. Millstein
Ira M. Millstein is a senior partner at the international law firm Weil, Gotshal & Manges LLP, where he works in government regulation and antitrust law. He also counsels boards on issues of corporate governance. In addition to his legal practice, Mr. Millstein is co-chair of the Millstein Center for Global Markets and Corporate Ownership, Columbia Law School and director of the Columbia Law School and Columbia Business School Program on Global, Economic and Regulatory Interdependence. He formerly served as senior associate dean for corporate governance and as Theodore Nierenberg Adjunct Professor of Corporate Governance at the Yale School of Management. Mr. Millstein is a life trustee and former chairman of the board of the Central Park Conservancy, chairman emeritus and member of the Board of Overseers of the Albert Einstein College of Medicine, and chairman emeritus of the board of trustees of the American Red Cross of Greater New York. He also serves on the Advisory Council of Transparency International. Mr. Millstein is a graduate of Columbia Law School.
Ng Kok Song
Ng Kok Song is adviser and chair of global investments at the Government of Singapore Investment Corporation (GIC). Previously, he served as managing director and group chief investment officer, where he was responsible for coordinating the investment activities of the GIC Group, evaluating the risk–reward analysis of all asset classes, and managing the GIC portfolio at the strategic level. Mr. Ng has also held positions at the Singapore Ministry of Finance and the Monetary Authority of Singapore, where he was in charge of foreign exchange, money market operations, and reserve management. He was the founding chairman of the Singapore International Monetary Exchange (SIMEX), now incorporated into the Singapore Exchange. Mr. Ng is also the founding chairman of the Wealth Management Institute, a director of the Singapore Labour Foundation, and chairman of its investment committee. He sits on the strategic committee at Agence France Trésor. Mr. Ng holds a degree in physics from the National University of Singapore and a degree in management from Stanford University.
Barbara G. Novick
Barbara G. Novickis vice chairman at BlackRock and a member of the Global Executive and Global Operating Committees at BlackRock. She heads the firm’s efforts globally on government relations and public policy. Previously, Ms. Novick headed the Global Client Group and oversaw global business development and marketing and client services across equity, fixed-income, liquidity, alternative investment, and real estate products at BlackRock. She also served as vice president in the mortgage products group at the First Boston Corporation and has worked at Morgan Stanley. Ms. Novick is the author of numerous articles on asset management and public policy issues. She currently serves as a trustee of Cornell University, UJA-Federation of New York, and the HCM Foundation and as a member of the CFA Institute Future of Finance Advisory Council and the Reuters Editorial Advisory Board. Ms. Novick holds a BA degree in economics from Cornell University.
Saker Nusseibehis CEO and head of investment at Hermes Fund Managers. Previously, he served as chief investment officer of global equities and global head of equities at Fortis Investments. Mr. Nusseibeh also served as chief investment officer of global equities and head of marketing at SGAM UK and as a managing director at SGAM. He started his career at Mercury Asset Management. Mr. Nusseibeh is chairman of the 300 Club, a group of leading investment professionals who aim to raise awareness about the potential impact of current market thinking and behavior. He is also a public member of Network Rail.
Robert C. Pozen
Robert C. Pozen is a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution. Previously, he served as a president at Fidelity, chairman at MFS Investments, and a senior official at the U.S. SEC. Dr. Pozen has also served as secretary of economic affairs under Governor Mitt Romney. He serves as a director of Medtronic, Nielsen, and several nonprofit organizations. Dr. Pozen is the author of seven books, including his latest,Extreme Productivity. He graduated from Harvard College and holds a law degree and a doctorate from Yale University.
Mary Schapirois former chairman of the U.S. Securities and Exchange Commission (SEC) and is vice chairman at Promontory. Prior to becoming SEC chairman, she served as the CEO of the Financial Industry Regulatory Authority (FINRA), the largest nongovernmental regulator for securities firms doing business with the U.S. public. For more than a decade, Ms. Schapiro worked at FINRA and one of its predecessors, the National Association of Securities Dealers (NASD), where she also served as chairman, vice chairman, CEO, and president of NASD Regulation. She also served as chairman of the Commodity Futures Trading Commission and as a commissioner of the SEC. Ms. Schapiro has been nominated to the board at General Electric and is a former director at Kraft Foods and Duke Energy. She holds a BA degree in anthropology from Franklin & Marshall College and a JD degree from George Washington University.
Andrew Shengis president at Fung Global Institute. Previously, he served as chairman of the Securities & Futures Commission of Hong Kong and as a central banker at the Hong Kong Monetary Authority and at Bank Negara Malaysia. Mr. Sheng has also worked at the World Bank and chaired the technical committee of the International Organization of Securities Commissions. He serves as chief adviser to the China Banking Regulatory Commission and as a board member of Khazanah Nasional Berhad, the national treasury of Malaysia. Mr. Sheng also serves as a member of the advisory councils of the China Investment Corporation, the China Development Bank, and Free University of Berlin. He is an adjunct professor at the University of Malaya and at the Tsinghua University School of Economics and Management. Mr. Sheng is the author ofFrom Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s. He holds a BSc in economics and an honorary doctorate from the University of Bristol.
Robert J. Shiller
Robert J. Shilleris Sterling Professor of Economics at Yale University as well as a fellow and professor of finance at the International Center for Finance at the Yale School of Management. In addition to his publications on a wide variety of economic topics, he writes a column called “Finance in the 21st Century” for Project Syndicate and an “Economic View” column for theNew York Times. Mr. Shiller also works as a research associate at the National Bureau of Economic Research and co-organizes NBER workshops. He has served as the vice president of the American Economic Association and the president of the Eastern Economic Association. Mr. Shiller received his bachelor’s degree from the University of Michigan and his PhD in economics from MIT.He was awarded the Nobel Prize in Economic Sciences in 2013.
John Taft is CEO at RBC Wealth Management, United States, where he is responsible for RBC’s wealth management growth strategy in the United States. Previously, he served as head of asset management and products at RBC; as chairman, president, and CEO at Voyageur Asset Management; as president and CEO at Dougherty Summit Securities; and as a managing director at Piper, Jaffray & Hopwood. Mr. Taft also worked as a journalist and as assistant to the mayor of St. Paul, Minnesota. He has served as chairman of the Securities Industry and Financial Markets Association (SIFMA), during which time he testified before the U.S. Congress in support of a federal fiduciary standard of care for investment advisers. Mr. Taft is the author ofStewardship: Lessons Learned from the Lost Culture of Wall Streetand has been interviewed by numerous media outlets. He holds a BA degree from Yale University and a master’s degree in public and private management from the Yale School of Management.
2Please note, this section is the personal view of Paula Allen, President, CFA Society Melbourne.