For financial professionals, the bottom line is always trust and honesty. Each May, CFA Institute members across the globe celebrate Putting Investors First Awareness Month.
The educational push is guided by 10 pillar statements that help promote the integrity of the industry through values like respect, high ethical standards and fair treatment.
When West Vancouver resident Adam Alexander Keller recently defrauded a number of local residents out of as much as $600,000, posing as a financial professional, it exhibited how close to home the issue can get. David Smith, CFA Society Vancouver’s president and managing director for Pinnacle Fund Services, said the commitment is to raise the public’s trust in financial professionals.
“One way we do it is by promoting the Statement of Investor Rights,” said Smith. “That is a way for investment professionals to communicate to their investors that, ‘Hey, we’re going to operate in an ethical manner, following these principles.’ And the principles are based on putting investor interests above anything else.”
The 10 pillars cover a wide range of topics related to the industry including ensuring advisers offer independent and objective advice and assistance based on informed analysis, prudent judgment and diligent effort, and disclosing any existing or potential conflicts of interest in providing products or services.
Photo: CFA Society Vancouver president David Smith
Confidentiality and proper explanation of all fees beforehand are also pillars, rounding out a code of conduct that works to gain trust and keep it.
The Chartered Financial Analyst designation offered through the CFA Institute also helps to promote the idea of “investor first.” The credential is one of the most recognized investment management designations in the world and teaches the pillars at every step.
“We also need to educate the public,” added Smith. “Everyone as a whole – but the investing public in particular needs to demand a higher level of service from the investment professionals with whom they engage. It has to be both a top-down and a bottom-up approach.”
A recent BC Securities Commission report found that one in eight British Columbians over the age of 50 is vulnerable to investment fraud, and each year the Canadian Anti-Fraud Centre deals with scams from real estate investment to identity theft. Most of these crimes, like the one committed by Keller, occur after a level of trust with the victim is obtained and then money is asked for – promising exponential returns. Smith said this is the key: education prior to engagement.
“If he had been a credentialed financial adviser, the likelihood of this happening would have been slim. And the investors, had they known what to look for, and known what due diligence to do, might have been able to see through the fancy talk and the salesmanship.”
Smith said it’s important not to blame the victims, but to focus on awareness that investment fraud can happen to anyone. Outlined in the Statement of Investor Rights is the CFA Institute’s own code of ethics and standards of professional conduct, the benchmark for investment professionals around the planet, regardless of job title, cultural differences or local laws. All CFA Institute charter holders or program candidates are required to follow the code and standards at all times.
“We’re coming out to build a better industry through restoring trust,” said Smith, “a better financial industry by promoting awareness of these initiatives so that what happened in the case of Keller is less likely to happen in the future. And it is less likely to happen through investors’ understanding of what they’re getting and knowing what to ask for.”
Smith said this all starts with some pretty basic questions a potential investor should ask right from the get-go:
“Are you a credentialed financial adviser? Do you have a CFA designation? Are you governed by an ethical code? If the answer is not yes, and they can’t show you their designation right away, that is always the first red flag to look for.”
For more information about the CFA Institute’s Putting Investors First Awareness Month, click this link or ask your financial adviser.
