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10 YEARS LATER...
THE NEXT GENERATION OF TRUST
Paul Smith, CFA
President & CEO, CFA Institute
CFA Society Montreal
September 18, 2018
OUR MISSION
2
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
5
... AND FIVE YEARS LATER, THE DAMAGE WAS STILL
VERY MUCH APPARENT
Source: Edelman Trust Barometer, 2013
6
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
7
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
8
➢ 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
9
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
11
MILLENNIALS AND YOUNGER GEN-XERS
MORE TRUSTING OF FINANCIAL SERVICES
12
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
13
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
14
▪ 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
16
TRUST EQUATION
17
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
18
EIGHT STEPS TO INCREASE TRUST
19
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
4
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
8
5
6
7
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
20
20
BY EMBRACING THESE ACTIONS, WE AS AN INDUSTRY CAN CONTINUE TO EARN INVESTORS’ TRUST.
THANK YOU!