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Ethics
Vs.
http://www.youtube.com/watch?v=2CVqwoN5dJg
So what happened?
Non-creditworthiness people were given loans that cannot be paid back
High risk loans were packaged into CDO and got insurance to make it high rating
CDOs were sold to various investors
Why did they do this?
By mortgage brokers
By banks & structured
financiers
It needs to be done
By investment banks
Even by investors
Ethical Behaviour
Refers to behaviour that conforms to those values
Investors have moved beyond just good performance and are more interested in
trustworthy behaviours
Restoring trust
First Embrace transparency
Clearly articulate investment success and missteps
Disclose conflicts of interest, quickly address problems
Fully disclose fees and impact
Second Demonstrate Integrity
Resolving conflict of interest in favour clients
Structure fees to align with clients risk/return objectives
Third Improve communication
Communicate with clients early and often throughout investment process
Restoring trust
Sounds easy, but why havent we effectively implement?
A crisis of culture
A global survey of 382 financial services executives in Sept 2013 shows:
Most firms have attempted to improve adherence to ethical standards
Industry executives champion the importance of ethical conduct
But, executives struggle to see the benefits of greater adherence to ethical
standards
Needs to address knowledge gaps
Lack of understanding and communication between departments
continues to be the norm
Professionalism
II.
No
I dont
know
Yes
No
I dont
know
Yes
No
I dont
know
Yes
No
I dont
know
Yes
Report
Stop
I (C) Misrepresentation
Must not knowingly make any misrepresentations relating to investment analysis,
recommendations, actions, or other professional activities.
A misrepresentation is any untrue statement or omission of a fact or any
statement that is otherwise false or misleading.
I (D) Misconduct
Avoid dishonest, fraudulent, or deceitful conduct that reflects adversely on your
professional reputation, integrity, or competence.
Trust is the epicenter of the operations of the financial market as a whole.
Your professional reputation, integrity, and competence are the starting point
on this critical path to trust.
Investor constraints
Performance measurement benchmarks
Review and update the investment policy statement regularly.
Document attempts to carry out the review if circumstances prevent it.
Develop test procedures for choosing investments that include
an analysis of the impact on the portfolios diversification.
a comparison of the investment risks with the clients assessed risk
tolerance.
the fit of an investment with the required investment strategy.
If you were David Sokol and Warren Buffet, how would you do it differently?
Conduct yourself with integrity and dignity and act ethically in all dealings