THE FUTURE OF FINANCE: ENCOURAGING TRUST IN THE INVESTMENT INDUSTRY

2

BUILDING A RELATIONSHIP BASED ON TRUSTWhere do most people get investment advice from?

• Family

• Friends

• Referrals (from friends & family)

Why?

• Because they trust them

• Right or wrong, appropriate or not, they do not have ulterior motives or motivations

“Trust is the building block that enables capital markets to serve society’s needs.”-CFA Institute

From “Stewardship” by John Taft. This material is reproduced with permission of John Wiley & Sons, Inc.

3

WHAT WORD COMES TO MIND WHEN YOU HEAR “WALL STREET”?

Media

Banks

Financial Services

Energy

Pharmaceuticals

Consumer Packaged Goods

Food and Beverage

Automotive

Technology

51

53

54

60

61

66

67

71

78

Financial Services

Banks

Media

Pharmaceuticals

Energy

Consumer Packaged Goods

Food & Beverage

Automotive

Technology

48

51

51

59

59

65

66

70

79

According to the Edelman Trust Barometer, the financial services industry is among the least trusted industries globally.

WE MUST RESTORE TRUST IN FINANCE

Question: Please indicate how much you trust businesses in each of the following industries to do what is right.

4

2014 2015

Lack

of e

thica

l cult

ure

within

finan

cial fi

rms

Poor g

over

nmen

t reg

ulatio

n an

d en

forc

emen

t

Mar

ket m

icro

struc

ture

I don

’t thin

k the

re is

lack

of t

rust

in th

e fin

ance

indu

stry.

Other

63%

16%

6% 4%12%

59%

15%

6% 4%

16%

65%

16%9%

5% 5%

67%

17%

4% 3%9%

GLOBAL AMER APAC EMEA

“No opinion” option excluded from results.

WHICH FACTOR DO YOU THINK HAS CONTRIBUTED MOST TO THE CURRENT LACK OF TRUST IN THE FINANCE INDUSTRY?

Source: Global Market Sentiment Survey 2015

WHICH ONE OF THE FOLLOWING FIRM LEVEL ACTIONS IS MOST NEEDED IN THE COMING YEAR TO HELP IMPROVE INVESTOR TRUST AND CONFIDENCE?

“No opinion” and “Other” excluded from results.Source: Global Market Sentiment Survey 2015

31%27%

21%

9%6%

3%

7

Investors who do not trust the industry are unlikely to:• Save and invest for their future• Achieve their long-term financial objectives

A “savings gap” means:• Longer working lives• Lower quality of life• Intergenerational stress

THE COSTS OF FAILURE OF TRUST

Social impact

8

THE ECONOMIST INTELLIGENCE UNITStatistical Highlights: 380 Financial Service Execs Globally

Ethics                   

· 91% of survey respondents placed equal importance on ethical behavior and financial success.

· 67% of firms have raised awareness of the importance of ethical conduct by all employees

· 53% of financial services executives say strictly adhering to ethical standards inhibits career progression at their firm

 Financial Knowledge

· 62% of financial executives don’t know what is going on outside their department

· 60% of financial executives highlight gaps in employees’ knowledge as a significant risk for their firm

· 59% of financial executives agree improving knowledge of the industry as a whole would help make their firm more resilient

· 12% say they are confident in their knowledge of the global regulatory environment

9

EIU RESULTS

What is CFA Institute doing about issues addressed in report:

The report reaffirms the need for strong global adoption of ethics and standards, which is at the heart of the CFA Institute mission. Actions taken by CFA Institute to address these issues include:

1. CFA Program and Claritas education programmes which include ethics and client service modules

2. The global code of professional conduct that CFA charterholders sign up to on an annual basis, alongside other codes of conduct such as the Asset Manager Code and Pension Trustee Code

3. Future of Finance content and tools

4. Freely available webinars and training tools focused on ethics education

10

Future of Finance Strategic Objective:To shape a trustworthy, forward-thinking financial industry that better serves society.

The future of finance will be better if financial market practices are fair and financial service providers put investors’ interests first.

CFA Institute mission: To lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.

What

FUTURE OF FINANCE INITIATIVE

How

Why

We will accomplish this by creating, curating, and sharing content, as well as engagement tools, that will motivate industry practitioners and stakeholders to demonstrate professionalism and integrity, both individually and as an industry. The Future of Finance themes provide an organizing framework and a structure and platform for engagement.

11

CFA INSTITUTE AND EDELMAN 2013 INVESTOR TRUST STUDY

CFA Institute and Edelman partnered to understand the state of trust in the investment industry. The study conducted in July 2013 surveyed 1,604 retail and 500 institutional investors in the United States, United Kingdom, Hong Kong, Canada and Australia.

FUTURE OF FINANCE AREAS FOR REFORM

Financial Knowledge

Retirement Security

Regulation & Enforcement

Putting Investors First

12

Transparency & Fairness

Safeguarding the System

Making a difference individually Making a difference collectively

13

FUTURE OF FINANCE TOPIC AREAS

Putting Investors FirstThe duty to protect investor interests

14

Our Goal: To foster a trustworthy environment in which financial agents serve their clients in an ethical and professional manner.

Key Solutions:• Statement of Investor Rights• Asset Manager Code of Conduct

FUTURE OF FINANCE TOPIC AREAS

Putting Investors FirstThe duty to protect investor interests

15

50 actions you can take to build trust and enhance your firm’s reputation — inspired by “real-world” ideas from CFA charterholders and members

To view the CFA Institute Integrity List online, visit:cfainstitute.org/integritylist

THE INTEGRITY LIST

16

PUTTING INVESTORS FIRST MONTH: MAY 2015• Inspired by the Statement of Investor Rights, our members have begun an annual awareness campaign.

• In May of 2015, its second year, activities took place in 98 cities, representing 85,000+ members. The goal was to share the importance of putting investor interests first.

• 13 U.S. governors declared proclamations, 10 new translations of the rights or other investor tools were produced, and 6 stock exchanges held ceremonies. Dozens of educational conferences and outreach events were held, many in partnership with other groups.

17

Americas (55)ArkansasAtlantaAustinBahamasBostonBuffaloCalgaryCaymanChicagoClevelandDallas/FWDaytonDetroitEast TennesseeHawaiiHouston JacksonvilleKansas CityLos AngelesMadison

MemphisMiamiMilwaukeeMinnesotaMississippiMontrealNaplesNashvilleNew MexicoNew YorkOkanagan OklahomaOrange CountyOrlandoOttawaPhiladelphiaProvidenceSan AntonioSan DiegoSan FranciscoSaskatchewan

SeattleSouth FloridaSpokaneSt. LouisStamfordTampa BayTorontoTrinidad & TobagoVancouverVictoriaVirginiaWashington DCWest MichiganWinnipeg

EMEA (32)AustriaBahrainCyprusCzech RepublicEast Africa

EgyptEmiratesFinlandGermanyGreeceHungaryIrelandIsraelIstanbulItalyJordanKazakhstan KuwaitLuxembourgMauritiusNetherlandsNigeriaPolandPortugalQatarRomania

RussiaSaudi Arabia South AfricaSpainUKUkraine

APAC (11)Hong KongIndiaIndonesiaJapanMalaysiaMelbourneNew ZealandPerthPhilippinesSingaporeSydney

PUTTING INVESTORS FIRST MONTH: MAY 2015PARTICIPATING SOCIETIES

18

FUTURE OF FINANCE TOPIC AREAS

Financial KnowledgeEmpowering investors to make better decisions

19

Our Goal: To support financial education by providing resources that will help investment professionals make decisions that better serve their clients.

Key Solution:• CFA Institute Education Products• Financial Market History Project

FUTURE OF FINANCE TOPIC AREAS

Financial KnowledgeEmpowering investors to make better decisions

Claritas Investment Certificate

20

FUTURE OF FINANCE TOPIC AREAS

Retirement SecuritySensible solutions to protect pension systems worldwide

OVER THE NEXT FIVE YEARS, WHAT IS THE MOST UNDERESTIMATED RISK THAT COULD NEGATIVELY IMPACT GLOBAL CAPITAL MARKETS?

0%

10%

20%

30%

40% 34%

20%14% 13%

8% 9%

Source: Global Market Sentiment Survey 2015

22

Our Goal: To encourage sound retirement planning based on understanding of key issues.

Example:• Essentials of a More Secure Retirement• Pension Trustee Code of Conduct• Life Annuities: An Optimal Product for

Retirement Income• Online discussion forum on pension

design

FUTURE OF FINANCE TOPIC AREAS

Retirement SecuritySensible solutions to protect pension systems worldwide

ESSENTIALS OF A MORE SECURE RETIREMENT

23

Essentials of a More Secure Retirement highlights key principles and practices to help individual investors successfully reach their retirement goals.

Using the tools, planning insights, and suggestions in the document will help investors to:

• Get Started• Keep It Going• Invest Wisely• Retire Well

EVERYBODY HAS A ROLE (IN BUILDING TRUST)

24

Professional Organization Industry/ Jurisdiction

Designations and Certifications

New competencies – Investor Ed & Putting clients first

Training and Credentialing

Experience & continuing education

Organizational focus on problem solving

Comprehensive Curriculum (incl. ethics)

Develop ethical foundationDemonstrate integrity

Standards of practice –Asset Manager Code

Continual practice analysis

Communication & educational tools – SIR, PIR

Demonstration of ethical foundation

Ethical Framework/ Codes and Standards

Focus on behavior related attributes

Educate & train all employees

Rebuilding reputation

25

VISIT THE FUTURE OF FINANCE WEBSITE

CFAInstitute.org/FutureFinance

THE FUTURE OF FINANCE STARTS WITH YOU!

CFAINSTITUTE.ORG/FUTUREFINANCE

26