10 YEARS LATER...

THE NEXT GENERATION OF TRUST

Paul Smith, CFA

President & CEO, CFA Institute

CFA Society Montreal

September 18, 2018

OUR MISSION

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To lead the investment profession globally

by promoting the highest standards of ethics, education,

and professional excellence for the ultimate benefit of society.

GLOBAL INFLUENCE TODAY

3

151 member societies

More than 163,000 members and 319,000 candidates

in more than 150 countries

AMERICAS

Members: 97,000

CFA Program Administrations: 88,000

CANADA

Members: 19,276

CFA Program Administrations: 22,540

60%

EUROPE, MIDDLE EAST,

AFRICA

Members: 35,000

CFA Program Administrations: 58,000

22%

ASIA PACIFIC

Members: 31,000

CFA Program Administrations:173,000

18%

Member data as of August 2018; CFA Program for FY18; numbers rounded

OUR STRATEGY AND OUTCOMES

4

Business models geared toward achieving investor outcomes.

Delivering member value and advocacy through societies.

DEVELOP FUTURE PROFESSIONALS

Through relevant and accessible

credentialing programs.

High standards of entry and

professionalism.

DELIVER MEMBER VALUE

That accelerates the professional

success of our members.

Educated, ethical members at

the top of their profession.

BUILD MARKET INTEGRITY

That benefits investors and

our members that serve them.

Regulations that align

firms and clients.

ST

RA

TE

GY

OU

TC

OM

ES

The twin peaks of professionalism are Continuing Professional Development and Advocacy

THE FINANCIAL CRISIS WREAKED HAVOC...

Copyright: The Wall Street Journal, Sept. 15, 2008

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... AND FIVE YEARS LATER, THE DAMAGE WAS STILL

VERY MUCH APPARENT

Source: Edelman Trust Barometer, 2013

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Edelman’s 2013 Trust Barometer found that financial services was the least trusted industry

FINANCIAL SERVICES INDUSTRY NOW RANKS

IN THE MIDDLE TIER FOR TRUST

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26%

30%

35%

40%

41%

44%

44%

44%

47%

50%

64%

Media

Government

Entertainment

Telecommunications

Energy

Automotive

Pharmaceuticals

Financial Services

Law

Food and Beverage

Technology

2018 Industry Trust Levels by Retail Investors

WHY TRUST MATTERS

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➢ We believe the industry’s future is promising – If professionals embrace

trust and chart a course that better fulfills the industry’s purpose

➢ Trust is vital to a fiduciary industry that operates with asymmetry of

information

➢ It’s relatively easy to build trust and to demonstrate it via credibility and

professionalism

➢ Better outcomes are possible -- for the end investor, the industry, and

society – when trust is placed at the core of relationships

➢ If we succeed in building trust with our clients, we can build a

sustainable industry.

INVESTOR TRUST IS CHANGING

A new generation of investors

&

A new generation of investing tools

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Please visit the web site: https://nextgentrust.cfainstitute.org/

A global survey of 3,127 retail investors and

829 institutional investors from 12 markets in

November and December 2017.

In Canada: 501 retail investors

36 institutional respondents

RETAIL INVESTOR TRUST LEVELS IN FINANCIAL

SERVICES HAS INCREASED IN MOST COUNTRIES

Trust has increased in most countries, including Canada, but decreased in

India, Hong Kong, and Germany

81%

60%

45%

36%40%

37%41%

21%

31%28%

71% 70%

51%48% 48% 47% 46%

40%35%

31% 31%

24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

India China Canada US Brazil Singapore UAE France HK UK Australia Germany

2016 2018

10

TRUST THROUGH THE CLIENT LIFE CYCLE

Trust an important factor when hiring an investment firm

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MILLENNIALS AND YOUNGER GEN-XERS

MORE TRUSTING OF FINANCIAL SERVICES

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55%49%

35%40% 40%

25-34 35-44 45-54 55-64 65+

Trust in Financial Services by Age (retail investors)

Millennials Gen-Xers Baby Boomers

Note: These generational definitions are similar to those defined by the Pew Research Center, in which Millennials are currently age 20–37,

Gen-Xers are 38–53, and Baby Boomers are 54–72.

HUMANS STILL GIVE MORE TRUSTED

RECOMMENDATIONS

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72%81% 79% 79% 79% 76% 75% 73% 72% 71%

55%

31% 30%

21%

16% 18% 17% 17%16% 16% 20% 21% 19%

34%

56%

43%

7% 3% 3% 4% 5% 8% 9% 6% 7% 10% 11% 13%

28%

Retail Australia US Canada UK France Brazil Germany India UAE Singapore Hong Kong China

Which are you more likely to trust recommendations from?(retail investors)

A human adviser Both are equal A robo-adviser

NARRATIVES ABOUT THE INVESTMENT FIRM

OF THE FUTURE

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▪ Successful firms don’t dodge industry

realities

▪ Professionalism emerges as key business

driver

▪ The power of people plus automation

▪ The power of platforms and customisation

▪ Step-change in collective intelligence

▪ Firms evolving their cultural edge

▪ Traditional investment models overturned

▪ Sustainability embedded across industry

▪ Smarter client segmentation

▪ Technology engenders increased trust

Fintech DisruptionNew technologies promote new business

models; disruption and creative destruction are

endemic; challengers do better than incumbents;

major disruptions to the world of work

Parallel WorldsDifferent segments – by geography, generation

and social group – engage in society differently;

a higher baseline for financial services

participation with wider dispersion of product

preferences

Lower for LongerNew normal low interest rates and returns

become embedded for the foreseeable future

(five-ten years) accentuated by lower levels of

global growth and higher levels of political

instability

Purposeful CapitalismCapitalism’s way of working evolves; the

investment industry raises its game with more

professional, ethical and client-centric

organizations acting in aligned-to-purpose ways

Source: CFA Institute 2017 and 2018

SCENARIOS

NARRATIVES

BUSINESS

MODEL

OPERATING

MODEL

PEOPLE

MODEL

INVESTMENT

MODEL

DISTRIBUTION

MODEL

TRUST BY INDUSTRY SUBSECTOR:

PERSONALIZED AREAS ARE TRUSTED MORE

Canadians trust most industry subsectors more than investors globally

Robo-advisers are trusted less in Canada than globally

16%

30%

38%

39%

40%

42%

49%

49%

22%

39%

38%

33%

37%

41%

43%

44%

0% 10% 20% 30% 40% 50% 60%

Robo-adviser

Insurance

Investment management firms

Full service brokers

Other personal financial services

Consumer credit

Financial planners

Investment Counselor / Private Wealth Manager

Global Canada

15

35%

17%14%

7% 6%4% 3% 2% 2%

9%

49%

15%12%

3% 3% 4% 4%1%

9…

0%

10%

20%

30%

40%

50%

60%

Global Canada

CANADIANS RELY ON THEIR ADVISERS FOR ADVICE

MORE THAN INVESTORS GLOBALLYMost Trusted Source for Investment Advice

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TRUST EQUATION

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In Future State of the Investment Profession, CFA Institute introduced a

trust equation to outline some of the components of trust. In the equation,

trust and value are a function of both credibility and professionalism.

ADOPTING AN INDUSTRY CODE OF CONDUCT

CAN INCREASE INVESTOR TRUST

Question: If your investment firm told you they now adhere to a voluntary code of conduct for the industry, what would best describe your reaction? a) I would trust

the firm more because they are doing more than the minimum required by law. b) I would be indifferent. c) I would see this as unnecessary if legal requirements are

being adhered to. (only asked of retail investors with an adviser)

70%64%

84%

71%67% 65%

62% 62% 61%58% 57% 56%

51% 50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Trust More if Firm Adheres to Voluntary Code of Conduct

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EIGHT STEPS TO INCREASE TRUST

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Adopt a code of conduct to reinforce your firm’s commitment to ethics

Maintain strong brand identity and follow-through on brand promises

Employ professionals with credentials from respected industry organizations

Stay focused on building a long-term track record to demonstrate competence

CREDIBILITY

PROFESSIONALISM

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1

2

3

Demonstrate your dedication to the values clients hold dear

Improve transparency and clarity regarding fees, security, and conflicts of interest

Use clear language to demonstrate that client interests come first

Showcase your ongoing professional development to improve investment knowledge

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10 YEARS LATER, WE MUST...

Set high standards of entry and professionalism

Create business models geared toward achieving investor outcomes

Advocate for regulations that align firms and clients

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BY EMBRACING THESE ACTIONS, WE AS AN INDUSTRY CAN CONTINUE TO EARN INVESTORS’ TRUST.

THANK YOU!