Industry needs to win back investors

By Vikram Barhat | September 27, 2012 | Last updated on September 27, 2012
2 min read

The biggest casualty of the global financial crisis was not loss of capital, but erosion of investor confidence.

And that’s why people refuse to acknowledge that financial markets have since recovered, said John Rogers, president and CEO of CFA Institute at the Economic Club of Canada this morning.

Read: Scrutiny of advisors to increase

“The S&P 500 is back to its all-time high; [yet] people don’t want to believe that,” he says. “Bond levels are back at, or better than, previous levels, but no one feels good about them.”

The constant flow of bad news and market uncertainty have taken their toll on what Rogers calls the social contact between clients and advisors.

“When individuals lose confidence, they get into a defensive posture,” he says. “We see this globally; we see people who are not interested in coming back into the capital markets as investors.”

They have to be coaxed and cajoled to have exposure to equity markets and long-term investments, he added.

Read: Investors wary of scandal

Without being able to see a long-term return on their investments, clients tend to focus on the short-term impact of their decisions. “They are just thinking about tomorrow,” he says. “And that is going to come back to haunt us down the road [in the form of] a retirement savings gap.”

The process of restoring investors’ faith in the markets must be rooted in strong ethics and education.

“In too many markets, individuals are able to practice investment management with a bare minimum qualification,” said Rogers.

Read: Study shows investors trust advisors

He adds industry participants must pressure regulators to build market systems that protect investors.

“The ability of regulators to actually enforce the rules is very important. In many major financial markets, there is a chronic underfunding of regulators, and of the enforcement arms of regulators, and that’s a problem that needs to be addressed.”

Read: Keep clients during a crisis

Vikram Barhat