The CFA (Chartered Financial Analyst) Texas Investor Summit, sponsored by the CFA Society of Dallas-Fort Worth and the CFA Societies of Texas, was held in Dallas this past week and featured Robert S. Kaplan, President & CEO of the Federal Reserve Bank of Dallas, and Robert Jenkins, London School of Economics and a member of the CFA Institute Board of Governors.
I was honored to be a speaker at their conference, most especially as the CFA Institute, a global association of investment professionals helping to build a better world for investors, is the gold standard for the industry, with over 135,000 CFA’s in 150 countries worldwide. At the foundation of their work is their Code of Ethics and Standards of Professional Conduct.
Obtaining a CFA designation is vigorous. In addition to their college degree, it takes a candidate an average of four years to earn the CFA designation and fewer than 20% actually make the grade. Candidates take one exam per year over three years and must have four years of qualified, professional experience in an investment decision-making process in order to obtain the CFA charter.
An integral part of the CFA Institute mission is to develop and administer codes, best practice guidelines, and standards that guide the investment industry. These standards help ensure all investment professionals place client interests first.
In my presentation, I focused on ethics and the evolution of ethical issues leading to regulation, which attempts to control behavior and often fails miserably, given human nature’s tendency to look after our own self-interest. Egregious unethical behavior ultimately results in the public demanding that laws are passed to govern that behavior which often leads to unintended consequences, Dodd-Frank being one such example in the banking industry.
The passage of Dodd-Frank, put in place to curtail the behavior of the larger banks which had caused the financial crisis, actually backfired. Ironically, Dodd-Frank became a gift to the larger banks as the larger banks had the resources to lobby Congress and work with regulators to eliminate many of the provisions of the bill that related specifically to them.
The smaller community banks could not effectively compete and inordinately bore the high costs of compliance, and many have had to sell out to the larger banks.
I warned them that their industry might have the same unintended consequences, with the small RIA’s – – registered investment advisor firms – – probably witnessing a huge compression of fees and high compliance costs and thus making it difficult to compete as new fiduciary rules are implemented.
It was an honor to introduce myself to Mr. Kaplan. In his remarks, he spoke about the economy in general and the strong Texas economy, a subject which very much concerns the CFA attendees.
I noted that experts in the field of ethics agree that when there is a conflict of interest, where one has a personal interest in one of the possible outcomes, there is a natural inclination to choose the outcome which personally benefits us, either directly through compensation or indirectly through a more favorable performance evaluation.
And we sometimes put our own interest first regardless of a previous training in ethics. However, if we have had exposure to a code of ethics and are reminded of such, which CFA certainly does, then there is significantly less demonstrated self-interest.
I reminded them that most especially in a profession with a stated mandate to build a better world for investors, ethics matter, today more than ever when too many look after themselves first. Yes, it was indeed an honor to be associated with a group that consistently looks at and follows ethical standards as their stated code of honor and puts the client’s interest first.
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
