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Wall Street to Try to Win Back Investor Trust
On November 6, 2013
This week is a big week for Chet Helck. The Raymond James Global Private Client Group Chief and Securities Industry Financial Markets Association (SIFMA) Chairman will oversee the launch of an initiative which, reflecting his own “passion”, will become an indelible part of his legacy. On Thursday SIFMA will announce an initiative to address investor distrust of Wall Street when Judd Gregg, SIFMA CEO, speaks at the National Press Club in Washington. Next Monday, Helck will welcome President Bill Clinton to kick off SIFMA’s annual meeting.
The importance to Helck of restoring investor trust is obvious. In October 2012 at SIFMA’s annual meeting, as the incoming Chair, Helck spoke plainly and clearly about the initiative. “Our main job this year is to restore trust in our industry. We have to fix what’s wrong, and take accountability and then emphasize what’s right.” Helck restated this message throughout the year. In May in an IA interview, Helck said, “My most important goal for this year is to take on the issue of public trust and confidence…. (trust) has reached down to a level where its critical that we address it.” In July, in OnWallStreet, Helck said restoring trust, “has been the cornerstone of my year as Chairman of SIFMA. It’s been my passion.” The story continued, “The resulting recommendations says Helck, will likely encompass changes to industry regulations, practices and transparency.”
SIFMA CEO Gregg, on this initiative, stresses the capital markets. In August, WealthManagement reported that SIFMA is working on “An aggressive campaign to combat the lack of investor confidence in the financial sector. Gregg plans to spearhead a grassroots initiative aimed at showing the public how essential the capital market system is in the U.S.”
When asked what advisors (and brokers) can do to be responsible “in lending and (the) sale of products,” Gregg’s advice is pointed. In a July OnWallStreet interview, he says, “Above all be honest and transparent with your clients.”
Helck and Judd speak candidly of the gravity of the problem; they acknowledge what needs to be done. Chief among the remedies is investor education about the markets, increased transparency from firms and, for advisors (and brokers) to “be honest and transparent.” As to a way forward, they could do far worse than heed the counsel from the independent research on this topic.
One key insight from the research is how investors’ positive views of the capital markets is distinct and separate from investors’ distrust of Wall Street and large banks.
Last month’s “Main Street Investor Survey,” by the Center for Audit Quality suggests that confidence in the capital markets had remained fairly steady over the past several years. Further, Septembers report from the American Enterprise Institute (AEI) on investor views, “Five Years After the Crash: What Americans Think About Wall Street, Banks, Business and Free Enterprise,” distinguishes Americans’ confidence in business and free enterprise generally, from Americans cryptic distrust of Wall Street.
Distrust of Wall Street, the AEI report notes, is of course not new. What is new is the financial crisis magnified these negative views; they are now “deep-seated.” So, “Americans see Wall Street as a culture apart, one that operates by a foreign code of conduct.”
Harris Interactive has measured corporate reputations for many years and its data may offer insight into what being viewed as a “culture apart” means. Its February 2013 survey measured the reputations of the “60 most visible companies.” Consumer technology companies (Amazon, Apple and Google), rated high, and occupy three of the top four positions, while financial institutions rated low among the sixty firms. Wells Fargo, JP Morgan, Citigroup, Bank of America and Goldman Sachs occupy, respectively, positions 52, 53, 55, 56, and 59.
Few would disagree that transparency matters. A July 2013, CFA Institute report, “Financial Reporting Disclosures: Investor Perspectives on Transparency, Trust and Volume,” offers new research on investors’ views of the 2008 financial crisis and its aftermath that underscores just how very much it matters. The report discusses the breadth of opaqueness in financial institutions and its impact, associating the five years of “economic uneasiness” following the crisis with high profile examples where transparency was lacking. Its overriding conclusion: the lack of transparency from financial institutions “leads to loss of investor trust and, in turn, the reluctance of investors to invest.”
Further, some Wall Street executives acknowledge they know what their firms can do to restore trust. The 2012 Makovsky Wall Street Reputation Study, which surveyed 150 marketing and communications executive at financial firms, sought to attain industry professionals’ views on the causes of tarnished reputations and what should be done about it. Among the findings, 96% of the respondents say “financial services companies invited negative public perceptions through their actions or in-actions.”
This is a big week for Chet Helck, Washington and Wall Street will be looking closely at SIFMA’s initiative. There may be no more important single action SIFMA could take than to significantly increase the quality of transparency around those issues that matter most to investors. Helck might consider what the author of the Harris Report, Robert Fronk, told CNBC, “One thing the public is screaming loud and clear about financial services is: be more sincere, be more honest, be more transparent.”
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