Professionalism in Investment Management
Investment management is a relatively new profession, still in the stage of infancy. It is mainly characterized by:
a. Lack of Professionals. Not all the professionals providing investment management services are members of a professional body.
b. Lack of Recognition. Low recognition by both employers and regulators prevents the establishment of a profession.
c. Low Public Understanding. There is a low level of understanding and recognition concerning the code of conduct and practices by the professionals amongst the public.
d. Growing Requirement of Professionals. Since there is a huge growth in capital markets across the globe, there is a complimentary requirement of professionals who can manage the investments of people. So, there is a growing demand for professionals.
Building Trust in Investment Management
a. Due to the growth in the investment industry, Investment Management has started to establish itself as a profession. But to develop public trust, it needs to develop and strengthen the professional bodies that govern the members providing investment management services.
b. There is a need to establish bodies that creates laws and regulations that govern these professionals and ensures their compliance with the desired code of conduct.
c. There should be laws that encourage transparency. The clients should get clear information about what and how much they are being charged for by the professionals. Also, there should be clear guidelines for the accountability of the professionals.
d. The code of ethics should focus on due diligence, integrity, and transparency of the professionals.
Ethical Standards in Investment Industry
Following are the benefits that make it extremely necessary for the investment industry to have a set of ethical standards:
a. Enhances Allocational Efficiency: There is a smoother flow of capital when the market participants are more confident of the ethical behavior of each other. The presence of ethical standards increases the ethical behavior amongst the market participants, thus participants are more willing to take the risk.
It should be noted that the economy as a whole benefits when the capital actually reaches into the hands of the borrower who can create its maximum value. The higher the level of trust in the market, the lower is the cost of capital in the market for the borrower.
b. Trust is the Base of Financial Markets / Investment: In the financial markets, the investors entrust their assets to the firms who manage the financial assets and make investments on their behalf. The investors will only hand over their funds to the firms if they can trust them concerning their security and safety.
c. The Nature of Product / Services: The products and services in the financial markets are not tangible assets or direct investments; they are rather a claim on the real tangible assets. Thus the products in the financial market are indirect and intangible. Hence, the investors must have trust in the instruments and the intermediaries that make them the rightful owners of these assets.
d. The Reputation Effect: The clients are more attracted to firms with better reputations and better investor relationships.