Globally, investors have been hit hard by the financial meltdown. Now, with panicky governments pouring money into miscellaneous ventures, they’re also bracing to be bombarded with a hefty tax burden. AER spoke with Jean-Pierre Diserens, vice-chairman and executive vice-president of CIFA, a non-profit Swiss foundation committed to investor protection, which fought to implement the Charter of Investor Rights—based on the central principles in the UN Charter of Human Rights—and won.
Q: What is the Convention of Independent Financial Advisors (CIFA) and how does it work?
A: We’re a non-profit foundation, sponsored the same way as the world economic forum. The only difference: We have a bottom-up approach, not topdown. I like the word non-governmental organization because our role is not to play into the hands of politicians but to play into the hands of investors. Our immediate concern is the end investor.
The investor has been hit with a financial crisis, and will soon be hit with a hefty tax burden. We feel he deserves better protection. That’s why we proposed the Charter of Investor Rights, based on the central principles in the UN Charter of Human Rights.
Q: How are you ensuring countries will sign on this Charter?
A: That is a long-drawn process. For now we’re mostly European. In Europe we represent about half a million IFAs. We’re now convincing Canadian associations to partner with us. We just roped in an association from Singapore to be a partner. We’re also working with Brazil and South America.
The idea is to have our NGO cover all the continents. Then— based purely on the numbers we represent and the power we have—we’ll garner the strength to bring more countries to sign on to the charter.
Q: Isn’t half a million a pretty strong number already?
A: Well, you can’t go to the UN and ask for special consultative status if you’re too small.
Q: How many organizations are members of the federation?
A: We do not list partners by country; we list them by cities. London-based The Economist is a media partner that gives us credibility with investors in the Anglo-Saxon world. When you’re a federator, nationality should not matter. The funny thing with CIFA is some of the member federations also have other associations based around the world.
Q: How is your executive board set up? Is it comprised of members from all these different groups?
A: Yes. We have members who are French, Italian, Belgian, Spanish— primarily European. We also have a consultative executive board. Angela Knight, the chief executive officer from the British Bankers Association, has been with us since day one. It’s a large network of people. We don’t have a relationship with any of the Canadian associations yet, and we feel the Canadian market is an important market.
Q: What’s the challenge you face when you come to a country like Canada and try to get organizations here to adopt something like the Charter of Investor Rights?
A: When you look at what has happened in the financial world, you realize regulation isn’t so effective.
Take money laundering, for example. The fight against money laundering began in 1991 with FATF-GAFI. The money laundering racket between developed nations in Europe and North America was estimated at $84 billion a year in 1991. Then came all this effort to implement regulation on a financial level; and now the market for money laundering has multiplied tenfold.
Hans-Peter Bauer is one of the creators of the Wolfsberg group, one of the 10 largest financial institutions in the world that have established some ethical principles. It’s people like Bauer, who have an idea of what can be done, that we put on our executive committee.
Q: In effect, are you trying to create a global principles-based framework that doesn’t supersede government regulation but exists apart from it?
A: We don’t intervene with national regulation. We’re essentially a think tank that wants to see the Charter of Investor Rights applied so investors can feel their money is theirs. Looking at what’s going on, the problem right now is you don’t really own the dollar you earn; the government dictates what funds you put your money into.
What we say with the charter is: It isn’t governments that own savings; it’s individuals who work for them. We believe investors should be free to use their money as they want, and structure themselves accordingly—move their money somewhere else if they think the government is taking too much of it.
The more regulated financial markets become today, the more crooked they get.
Q: Is that because you end up with different regulatory jurisdictions?
A: No. That’s all right because each market has the right to play against the competition. The basic concept is freedom. As soon as a country starts to impede freedom, they lose investors. This will also help the emerging and less developed markets to determine what they can do so investors are potentially interested in investing in their countries.
Q: Are you saying then they should be allowed to move their money to UBS or some other foreign institutions freely?
A: Yes. We’re not going to tell anybody what they should do. Everybody is entitled to making their own choices and mistakes. We just want to say to [nations], if you want to retain investors you have to respect them.
Q: Do you think your initiative takes on a greater importance against the backdrop of a global crisis?
A: Yes, especially when you look at what governments do. They can foolishly spend taxpayers’ money. They can organize forum structures that are absolutely ridiculous. I’m referring to organizations such as the G8, which is essentially an association of rich countries. But does anybody really want to be run by an association of rich countries?
It’s interesting, though, that we are the first organization to have entered the UN arena.
Q: One issue that investors do bring up is the inconsistency and lack of transparency in companies based out of certain countries, particularly with accounting standards. Would you prefer not to see International Financial Reporting Standards (IFRS) adopted?
A: IFRS is a philosophy. People have to agree to use it or not to use it. People are ultimately responsible for their decisions. If the board of directors of a company thinks their company will benefit from IFRS they should do it. If a company won’t benefit from adopting IFRS standards, then they shouldn’t be forced into it.
Q: In a free market system, investors may shy away from companies that don’t use IFRS.
A: Institutional investors that need to justify investments could shy away; individual investors won’t. They will look at the balance sheet of a company more realistically.
Q: When you talk about investor rights, what are some of the key rights you want to see enshrined?
A: Right now, we want investor organizations to adhere to the principles. To get the UN members to adopt this charter will be a long-term process— country by country. If you have national associations on board, it will be much easier to approach the subject.
And to be able to achieve this we have to reach a critical point where we are present in Europe, Asia, Africa and the Americas.
Q: Is it possible for national regulators to create an efficient global regulatory system that still adheres to the investor’s rights process?
A: With any subject, perfection is impossible. But you should still strive for it. This charter is of the same spirit as the Charter of Human Rights, which no country will be able to fully respect. It’s an ideal.
Q: What have been the North American and South American responses to this idea?
A: We created the foundation in 2001, and held our first forum in 2003. Between 2003 and 2005, we had gathered five federations and 40 associations representing more than 500,000 independent financial advisors.
When you create something, it either builds a demand or satisfies a demand. I think we were satisfying a demand, especially at the European level. It took the Swiss to create the organization and satisfy that demand.
Q: It could be argued that North America has an insular view of the world. How receptive are they to this global perspective on advising?
A: It’s funny we talk of the Americans, but the United Nations has such a bad image. The U.S. government pays 80% of the bill and they do everything in their power to discredit it, but they keep paying, which means there’s a reason to keep paying.
There’s only one place where globalization can really be dealt with and that’s the United Nations. I won’t say it’s being dealt with in a highly efficient way but it is being dealt with. A lot of things come out of the UN and trickle down to national regulations.
Q: Can you create advocacy at an international level that will trickle down to one of our regulators such as the Ontario Securities Commission?
A: It’s up to the national association if they want that advocacy. If a national association wants to become a member of CIFA it doesn’t have to pay anything. We’re an entirely privately funded foundation.
We realize associations pay so much already to take on all the regulatory crap thrown at them at the national level, and that they have neither the money nor the time to get into international advocacy.
We’re offering them an international platform where they can express themselves. This platform [the UN] has to be at their disposal, only then would we be able to work on international harmonization.
Q: Does your organization have accreditation requirements?
A: We have accreditation agencies that are members, such as the European Financial Planners Association. IFAs who attend our international forum get credits to retain their credentials.
Q: What are some of the recognized designations?
A: When we started, we tried to decide who a financial advisor was. Within the European Union alone there are 27 designations— represented by different organizations. We gave up on that idea.
Q: Doesn’t that underscore the need again for guiding general principles?
A: We will leave those general principles up to the federation. We have to be careful not to step on toes. Organizations that give out certifications make a living that way. We position ourselves on conduct, but we aren’t financial lawmakers. We take the same stance with national associations— we don’t intervene in the affairs of associations at a national level.