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A fulfilling investing journey
Panel Discussion 1:
THE FUTURE OF INVESTING
THE world faces a very challenging economic outlook and volatility is likely to rise in the future.
Unlike in the past, Chinese consumers won't come to the rescue as they face domestic challenges of their own.
Also, because China's money supply and bank balance sheets are already very stretched, it's unlikely that the government will be able to provide much stimulus.
The good news however, is that although the biggest risk is the US-China trade situation, an impending downturn is unlikely to be as severe as 10 years ago in the wake of the US sub-prime crisis.
One reason for thinking this is that although China alone accounts for about 30 per cent of global corporate debt, contagion risk would not be as severe as before as this would mainly be contained within the country itself.
To mitigate risk, shareholders should take greater responsibility and become more proactive in holding their companies accountable. By the same token, companies can follow the example of some of their peers by holding investor days, not just for institutional shareholders but everyone.
At AGMs, shareholders could ask their company boards how well-equipped they are to survive in a world of trade wars and rising protectionism.
They could also look at board diversity and true independence so that shareholders can be assured that their boards are able to avoid groupthink and properly challenge and guide managements.
Going forward, the panel was optimistic about technology levelling the playing field and making investing more accessible to more people.
Also important is ESG (environment, social and governance) which is being incorporated by an ever-increasing number of investors in their decision-making.
Panel Discussion 2:
ETHICS AND THE CUSTOMER
ETHICS is not an easy concept to define as its application could vary among countries, cultures and financial institutions (FI). At the simplest, ethical conduct means going beyond adhering to regulations and doing the right thing, and it is important to constantly remind the market of this because in any industry, there will always be "bad actors''.
The issue is arguably not so pressing for ultra-high-net-worth individuals as it is for the small, relatively unsophisticated retail investor. It is therefore incumbent on corporate leaders to take ownership of the issue and set the right ethical example.
In the experience of the CFA Institute, although most people can differentiate between right and wrong, the issue is one of implementation, that is, FI employees could regularly find themselves in situations where they have to do the wrong thing (for example, "we'll do it because everyone else is doing it'').
To overcome this, the Institute is working on a programme called "Giving voice to values'' that seeks to inculcate "ethical muscle memory'', that is, how to act properly when faced with a situation which pushes the person to do something unethical.
Part of the issue revolves around the way remuneration incentives are structured where commissions are tied to key performance indicators (KPIs). To overcome this, it is essential to have a robust sales process in place that doesn't focus on selling one product over another.
Alternatively, the Australian model offers some guidance - a recent study recommended either removing sales commissions entirely or calibrating remuneration to longer-term goals to address the problem of short-termism.
The panel thought banning commissions here was too radical and instead felt that it's important that the finance industry should move away from simply selling products or building relationships based on delivering numerical returns. Instead, the focus should be on meeting the customer's goals, for example, funding children's education or buying a property, that is, longer-term goals.
Equally important is that investors themselves have to understand that "making 10 per cent'' is not feasible because it would come with high risk, but instead to ask whether the product being offered would help them reach their goals. To help these investors, increased transparency is essential so that they know exactly what they are buying and how it aligns with their goals.
Panel Discussion 3:
THE KEY TO INVESTOR PROTECTION
INVESTOR protection is a shared responsibility, with everyone in the ecosystem having a part to play.
For investors, better knowledge is key if they are to protect themselves from loss. One panellist felt that although investors' knowledge has risen over the years, more could be done. A suggestion was to publicise real-life dispute resolution cases handled by the authorities as this would not only benefit individuals but also help institutions in tightening their own internal processes.
Panellists also felt that having more regulation was not the answer - one remarked that those who clamour for more rules could simply be looking for scapegoats to blame when money is lost. The emphasis was that ours is a caveat emptor regime and that the ultimate responsibility for buying any product rests with the investor himself.
However, the regulatory regime does play a part, focusing as it does on education, empowerment and if the risks are too great, excluding the investor from participating. One problem raised is that notwithstanding advances in these areas, investors still tend to focus on projected headline returns - and not enough on risks.
All members spoke of the importance of trust - in company disclosures and in the regulatory regime. They also discussed whether age should be a factor determining vulnerability and largely disagreed that the older you are, the assumption should be that you are more vulnerable. Age could be one but not the sole factor.