By: Rod Burylo
When it comes to trust, the financial services industry seems to be facing a crisis. It is not just the exempt market sector that has received a critical review over the past few years; from both regulators and the market in general. Other major sectors are facing their own regulatory reform, resulting from general displeasure with, and distrust of, a range of business approaches – from disclosures to compensation models. While it is not unusual for the practices of our profession to be questioned after a time of market or economic stress, the 2008/2009 correction seems to have brought with it considerable and prolonged finger-pointing (and finger-wagging) in the direction of the financial services industry.
Intuitively, we understand that conditions may be dire if the market no longer trusts an industry, a sector, a company, or even a person. Research supports this intuition: the most significant is that clients rank trustworthiness as the most important factor in selecting, and retaining their financial services providers. As well, regulators know, to fulfill their mandate of facilitating the flow of capital, the market must have trust in the system as a whole, and to realize their mandate of protecting investors, the system must be worthy of that trust. Given its importance, you might think that such professionals would be well-versed in the concepts related to trust, integrity, and, especially, with strategies to establish and maintain that condition with clients. You would be more wrong than right.
Trust is one of those concepts that philosophers love, as its meaning is not obvious, despite its use. Recently, the following definition was offered in a popular article on the Currency of Trust; “In business…trust is the acceptance of value or quality of a brand, product or service without evidence or inspection.” This definition is partial, at best: referring to a sub-category of trust that might be better described as ‘blind trust’ or perhaps, ‘faith.’ Of course, this can be an extremely dangerous notion of trust, especially in the financial services industry.
A more complete, and more useful, understanding of trust acknowledges that the expression ‘I trust you’ represents two distinct states of confidence. First, that the trusting party has confidence that the trusted party has the skills, abilities, knowledge, education, and business environment to complete the desired tasks, or provide the desired products or services. This ability-trust might be summarized as: ‘I trust that you are able to do it,’ or ‘I trust that you know what to do.’ Second, that the trusting party has the confidence that the trusted party has the character, integrity, moral disposition to fulfill their commitments, complete the tasks, provide the products and services, and in the manner, to which they have committed. This integrity-trust might be summarized as: ‘I trust that you will (chose to) do it,’ or ‘I trust that you will do the right thing.’
Consumers, employers, and regulators of the financial services industry do not typically arrive at a state of ability-trust without evidence or inspection (as the rejected definition of trust would have us believe). On the contrary, proficiency examinations, continuing education and professional development expectations, and professional designations all serve to provide objective evidence, to be inspected (verified), in support of ability-trust. The introduction of objective proficiency requirements in the exempt market sector are an example. Ability-trust may result from evidence, though not necessarily with assurance; indeed, there is concern being raised as to whether or not some advisors use titles or designations inappropriately to establish ability-trust with clients and prospects.
Integrity-trust is more likely to be arrived early in the relationship with little, or no, evidence or inspection - at least with consumers, who may rely on instinct or ‘gut feel.’ Importantly, however, it does not have to be that way. Increasingly, financial services professionals are seeking ways to demonstrate integrity, character and moral disposition with objectively verifiable evidence in support of integrity-trust. Many, for example, will subscribe to a code of ethics by participating in a professional association, or by virtue of a professional designation. Others will develop values statements for the practice or business, develop systems to monitor, report and address complaints or ethical concerns, or commit to professional development in the area of ethics. The exempt market sector is evolving in this regard.
NEMA has recently formalized a Code of Conduct: meant not only as a directive for members, but as an aspirational standard for the entire sector. Moreover, NEMA’s Exempt Education committee has identified and reviewed a variety of professional development opportunities on the topic of ethics, including on-going, self-study courses provided by IFSE and Business Career College. As well, there are a number of conference-style formats, with keynote presenters, provided by a range of well-known educational organizations, including: Knowledge Bureau (Puerto Vallarta, Mexico), EthicScan Canada (periodic webinar), Independent Financial Brokers of Canada (IFB, Calgary, Saskatoon and Vancouver), Institute of Advanced Financial Planners (IAFP, Niagara Falls), and Financial Planning Standards Council (FPSC, Toronto and Vancouver). While this sort of continuing education is not typically required of exempt market registrants, it is required of certain financial services professionals to foster the continued professionalization of this sector, and make its members worthy of the trust they seek.
The responsibility to establish, maintain and improve both ability-trust and integrity-trust rests on all participants of the financial services industry through their daily interactions. For the front-line staff and dealing representatives, understanding what constitutes ethical conduct and moral obligations, and committing to on-going professional development will be critical. Dealerships, product manufactures, and other organizations, must lead by example: demonstrating character, setting the tone, and ensuring the business environment supports, encourages and acknowledges those are committed to earning and maintaining the investors trust over the long term.