THE FUTURE OF FINANCE TOWARD A SUSTAINABLE FINANCIAL ECOSYSTEM

FIVE ORGANIZATIONAL PILLARS OF CFA INSTITUTE Ethical Champion Global Community Industry Knowledge Professional Excellence The Greater Good Championing ethical behaviour in investment markets. Creating a strong community of investment professionals. Being a respected source of knowledge in investment markets. Raising standards of professional excellence in the investment industry. Build an investment industry that serves the interests of investors and society. 2

THE SOCIAL CONTRACT BETWEEN FINANCE PROFESSIONALS AND THOSE WE SERVE HAS BEEN BROKEN 3

THE FINANCIAL ECOSYSTEM HAS GONE AWRY Global Economy 4

WE MUST RESTORE TRUST IN FINANCE According to the Edelman Trust Barometer, the financial services industry is the least trusted industry globally. 2013 2014 Technology 73 Technology 79 Automotive 66 Automotive 70 Food & Beverage 62 Food & Beverage 66 Consumer Packaged Goods 60 Consumer Packaged Goods 65 Energy 57 Energy 59 Pharmaceuticals 57 Pharmaceuticals 59 Media 50 Media 51 Banks Financial Services 49 46 Banks Financial Services 51 48 LAST!

From Stewardship by John Taft. This material is reproduced with permission of John Wiley & Sons, Inc. 6

WHICH OF THE FOLLOWING FIRM LEVEL ACTIONS IS MOST NEEDED IN THE COMING YEAR TO HELP IMPROVE INVESTOR TRUST AND CONFIDENCE? Global AMER APAC EMEA 40% 40% 40% 39% 28% 26% 25% 25% 14% 13% 13% 13% 14% 12% 12% 9% 6% 5% 7% 8% 2% 3% 1% 2% Improved culture established and encouraged by top management and executives Increased adherence to ethical codes and standards Source: Global Market Sentiment Survey 2014 Improved compensation practices Clarification of fiduciary duty responsibilities Increased staff training and education Other No opinion option excluded from results. 7

THE COSTS OF FAILURE OF TRUST Investors who do not trust the industry are unlikely to: Save and invest for their future Achieve their long-term financial objectives A savings gaps means: Longer working lives Lower quality of life Intergenerational stress Social impact 8

WE MUST RESTORE BALANCE TO THE FINANCIAL ECOSYSTEM 9

CFA INSTITUTE FUTURE OF FINANCE PROJECT Mission/Vision: To shape a trustworthy, forwardthinking financial industry that better serves society Objective: Provide the tools to motivate and empower each actor in the financial ecosystem to commit to fairness and integrity Motivating Formula: Fairness + Integrity = Trust 10

CFA INSTITUTE AND EDELMAN 2013 INVESTOR TRUST STUDY CFA Institute and Edelman partnered to understand the state of trust in the investment industry. The study conducted in July 2013 surveyed 1,604 retail and 500 institutional investors in the United States, United Kingdom, Hong Kong, Canada and Australia. 11

FUTURE OF FINANCE TOPIC AREAS 12

FUTURE OF FINANCE TOPIC AREAS Our Goal: To foster a trustworthy environment in which financial agents serve their clients in an ethical and professional manner. Key Solutions: Statement of Investor Rights Asset Manager Code of Conduct 14

STATEMENT OF INVESTOR RIGHTS Demanding that financial professionals abide by these rights helps you build trust in the person and/or firm you engage with, and thereby collectively restore trust, respect, and integrity in finance. WHEN ENGAGING THE SERVICES OF FINANCIAL PROFESSIONALS AND ORGANIZATIONS, I HAVE THE RIGHT TO 1. Honest, competent, and ethical conduct that complies with applicable law; 2. Independent and objective advice and assistance based on informed analysis, prudent judgment, and diligent effort; 3. My financial interests taking precedence over those of the professional and the organization; 4. Fair treatment with respect to other clients; 5. Disclosure of any existing or potential conflicts of interest in providing products or services to me; 6. Understanding of my circumstances, so that any advice provided is suitable and based on my financial objectives and constraints; 7. Clear, accurate, complete and timely communications that use plain language and are presented in a format that conveys the information effectively; 8. An explanation of all fees and costs charged to me, and information showing these expenses to be fair and reasonable; 9. Confidentiality of my information; 10. Appropriate and complete records to support the work done on my behalf. Also available in: Arabic Chinese French German Italian Japanese Korean Portuguese Spanish Thai 15

FUTURE OF FINANCE TOPIC AREAS Our Goal: To support financial education by providing resources that will help Investment professionals make decisions that better serve their clients. Key Solution: CFA Institute Education Products Financial Market History Project Claritas Investment Certificate 17

FUTURE OF FINANCE TOPIC AREAS Our Goal: To encourage sound retirement planning based on understanding of key issues. Example: Pension Trustee Code of Conduct Life Annuities: An Optimal Product for Retirement Income Online discussion forum on pension design 19

FUTURE OF FINANCE TOPIC AREAS Our Goal: To promote markets that ensure that all investors have access to accurate, complete, relevant, and timely information so that they can make sound decisions. Key Solution: Principles for Investment Reporting 21

FUTURE OF FINANCE TOPIC AREAS Our Goal: To advocate globally for workable regulatory and market solutions that promote fair and efficient capital markets. Recent examples: Self Regulation in the Securities Markets Report on Dark Pools 23

FUTURE OF FINANCE TOPIC AREAS Our Goal: To create a better understanding of and develop resolutions for existing and potential risks that could adversely impact the global financial system. Key Initiatives: Seek influential partnerships and support activities to promote a sound financial system, e.g., the Systemic Risk Council 25

HOW CAN YOU MAKE A DIFFERENCE? Focus Areas Ecosystem Actors Providers of Capital Users of Capital Intermediaries Traders of Capital Regulators Analysts Investment Managers Universities Media ACTION Impact on Future of Finance 26

HOW CAN YOU HELP REBUILD TRUST IN THE FINANCIAL ECOSYSTEM? The CFA Institute Integrity List is a collection of 50 tangible steps that investment professionals can take to restore trust in the investment industry. The list was inspired by real-world ideas from CFA charterholders and members. Require training on ethical decision-making for yourself and your firm. Place the client s interests before your own. Name and shame unethical behaviour. Recommend products with transparent payoffs, costs, and risks. Help clients focus on risk as much as they do on performance. For complete CFA Institute Integrity List online, visit: www.cfa.is/50waysrestoretrust 27

VISIT THE FUTURE OF FINANCE WEBSITE CFAInstitute.org/FutureFinance Centerpiece of a global, integrated marketing campaign with tagline, It Starts With You. Focus on depth of content on Future of Finance themes, with continual updates Repository for Project deliverables Designed to drive engagement and sharing Includes a newsfeed organized by topic area: o o o o o o Putting Investors First Financial Knowledge Transparency & Fairness Retirement Security Regulation & Enforcement Safeguarding the System 28

THE FUTURE OF FINANCE ADVISORY COUNCIL Chair John Kay, Economist and Author Keith Ambachtsheer, Director, Rotman International Centre for Pension Management, Rotman School of Management, University of Toronto Paul Chow, Former Chief Executive, Hong Kong Exchanges and Clearing Limited Andrew Lo, Charles E. and Susan T. Harris Professor of Finance at the MIT Sloan School of Management and Director of MIT's Laboratory for Financial Engineering Ira M. Millstein, Senior Partner, Weil, Gotshal & Manges LLP, and Co-Chair of the Millstein Center for Global Markets and Corporate Ownership, Columbia Law School Ng Kok Song, Adviser and Chair of Global Investments at the Government of Singapore Investment Corporation (GIC) Robert C. Pozen, Senior Lecturer, Harvard Business School and Senior Fellow, Brookings Institution Mary Schapiro, Managing Director at Promontory and Former Chairman of the U.S. Securities and Exchange Commission (SEC) Andrew Sheng, President, Fung Global Institute Elizabeth Corley, CEO, Allianz Global Investors Barbara Novick, Vice Chairman, BlackRock Robert Shiller, Sterling Professor of Economics at Yale University and 2013 Nobel Laureate in Economics Tom Keene, CFA, Editor-at-Large, Bloomberg News Saker Nusseibeh, CEO and Head of Investment, Hermes Fund Managers John Taft, CEO at RBC Wealth Management 29

THE FUTURE OF FINANCE STARTS WITH YOU! WWW.CFAINSTITUTE.ORG/FUTUREFINANCE 30