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rob carrick

So the financial industry has a conscience after all.

It made an appearance on Monday as the organization behind the Chartered Financial Analyst designation issued a statement outlining 10 rights investors should expect from financial services providers. Yes, you have rights as an investor. Who knew?

Plenty of individuals in the industry are great people, but you sometimes have to wonder about the financial institutions that employ them. There's been so much financial disruption over the past five years, and so little accountability from the companies responsible. Yet all the while, they assure us they're the right ones to look after our money.

The people at the Charlottesville, Va.-based CFA Institute know that investors have lost faith in the industry and the markets, and they're worried about the consequences. They say the cautious investing approach used by many people today is understandable in terms of what's happened since the financial crisis. But they worry that putting too much emphasis on safety creates a risk of low returns that leave people short of funds when they retire.

"Retirement savers have the luxury of time on their side," John Rogers, the institute's chief executive officer, said in an interview. "They can afford to take a higher risk profile, but they're frightened of the markets and they're distrustful. There will be social consequences if we don't do something to restore trust."

The statement of rights is designed to be a conversation starter both in the financial industry and between investors and their advisers. The CFA Institute encourages you to show a copy to an adviser you're using or thinking of hiring, and then going through the points one by one. "Demand that your financial professionals abide by these rights and get the service you expect and deserve," the statement says.

Among the rights you should demand: You have the right to honest, competent and ethical conduct; to independent, objective advice; and to an explanation of all fees charged to the client.

The most important point is a basic one – that your financial interests take precedence over those of your adviser and his or her company. This is a great point to raise with your adviser if her or she:

  • Thinks it’s a great idea to borrow a lot of money to buy mutual funds: Most investors aren’t emotionally well-suited for this, but there’s a big payday for advisers from fees and commissions generated when a big block of borrowed money is invested.
  • Suggests you buy investing products from his or her own firm rather than outside companies: The firm makes more money when it sells its own products.
  • Dismisses exchange-traded funds, which are low-cost index-tracking funds that trade like a stock: Lots of advisers feel threatened by ETFs because they’re licensed to sell only mutual funds.

You're right to be wary of the CFA Institute sounding like it's on your side. The financial industry loves to position itself as the home of smart people who will look after you. A big part of the distrust mentioned by Mr. Rogers comes out of a growing realization by investors that the financial industry is a sales machine much more than it is a provider of advice.

A CFA designation is no guarantee of an ethical adviser, but it does suggest you're dealing with someone who has an elite level of training by financial industry standards. Candidates must complete three tough educational courses, each with its own exam, and have four years of relevant work experience. CFAs must follow a code of ethics, and they are disciplined if they are found to have failed fail to do so. There are 13,263 CFAs in Canada and 106,857 worldwide.

The statement of investor rights is part of long-term effort by the CFA Institute to build a more trustworthy financial industry. The institute promises more public outreach, including a segment on fiduciary duty, or the obligation to put clients first.

What's notable here is that the CFA is trying to talk directly to investors, as well as to the financial community. Other adviser groups have lots to say about serving the interests of investors, but it's a conversation they prefer to have directly with securities regulators and not everyday people.

Mr. Rogers said regulators have a role in building trust, but he believes advisers and money managers should lead the way.

Know Your Rights

The CFA Institute has created this list of 10 rights that any investor should expect from financial service providers.

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.

For more personal finance coverage, follow Rob Carrick on Twitter (@rcarrick) and Facebook (robcarrickfinance).

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