The Australian financial services industry has a long way to go before it regains consumers’ trust, says the global chief executive of the CFA Institute.
Speaking at the Australian Investment Conference in Melbourne yesterday, CFA Institute global president and chief executive Paul Smith said Australians’ trust in the industry had been damaged, and that self-regulation alone was not enough to restore this trust.
“The Australian financial services industry, mostly large banks, has been dogged by widespread compliance breaches that have impacted just about every sector of the industry,” Mr Smith said.
“Current compliance regimes are obviously not working.
“Although forms of self-regulation, such as standards we can all adopt (think GIPS), move us in the right direction, we must have strong rules and proper enforcement that ensures markets are fair and transparent.
“We need better compliance that actually holds organisations, businesses and individuals to account publicly and has consequences that hurt when breaches are uncovered.”
Citing results from an Ernst & Young survey, Mr Smith pointed out that most Australians did not have trust in their bank.
“A massive four out of five Australian customers don't trust their bank to give unbiased advice and put their interests first! This is no laughing matter,” he said.
“No wonder we have not earned society’s seal of approval.”
Instilling trust in the sector would require a focus on two key themes of innovation and diversity, according to Mr Smith.
Professionals in the financial services industry would have to “innovate” and respond to “major global changes, such as a drift in the advisory business towards passive investing, fee compression and robo-advice” as well as “shifting regulatory environment, technology disruptions and demands for more transparency” in order to present value to clients, he said.
“These factors, taken together, represent a wake-up call as loud as a thunder clap – or they should,” Mr Smith said.
“Capital markets are evolving. Are we changing with them?”
Mr Smith pointed to “infrastructure investment in emerging markets” as an example, as well as the opportunities presented by embracing fintech.
“These developments, if we have the wit to respond to them positively, will develop better product penetration and client suitability, lower costs, improve consistency of advice and outcomes, and enable us all to handle much greater business volume,” he said.
“These innovations are not destroying our industry but making it better.”
Regarding diversity, Mr Smith remarked that the sector would need to “do a better job of reaching out to recruit from different pools”, and also noted the importance of “cognitive diversity” as well as “social fairness”.
“Who would argue that greater diversity in the industry would not contribute to innovation?” he asked.
“If we are to change the outcome, we must change the input.”
Stimulate new ideas. Stimulate new thinking. Top up your CPD and hear from industry experts with InvestorDaily’s Knowledge Centre. Keep up to date with the latest trends and reforms, all while adding to your CPD. Explore the knowledge centre Knowledge Centre now.
Despite unemployment falling to pre-pandemic levels, the central bank still thinks it’s too early to count its chickens on the success of ...