How professions build trust, and professionalism in investment management

What is a profession?

A profession is an occupational community with specific education, expert knowledge and a framework of practice and behavior that supports trust, respect and recognition. Doctors, lawyers, actuaries, accountants and engineers are the familiar examples. What separates them from craft guilds and trade bodies is the duty to uphold high ethical standards and serve society, not only the members.

A professional body is the organization that sets and maintains those standards. Employers, regulators, trade associations and not-for-profit groups can all support an industry, but they generally do not exist to set and police professional standards, so they are not professional bodies.

How do professions earn trust?

Trust is a strong belief in the reliability of a person or institution. To earn it, a profession combines several features. No single one is enough.

Memorize

• Normalizes behavior. Codes and standards written by practitioners complement regulation and cover many more practices than high-level rules can. Governments often support them because a profession can keep standards more sophisticated and current than a regulator can.
• Serves society. Professionals go beyond the letter of the code, for example by arguing for higher educational and ethical standards.
• Has client focus . Clients’ interests, and the integrity of the profession, come above personal interests. The core obligation is fiduciary duty : a high standard of care when acting for the benefit of another party, with reasonable care, skill and diligence.
• Sets high entry standards that go beyond academic credentials, and keeps a body of expert knowledge built from best practice.
• Encourages continuing education. Qualifying once does not keep anyone competent. Most bodies require a set amount of new learning each year, known as continuing professional development .
• Monitors conduct. Members must be accountable. Professional bodies use self-regulation : they monitor members and impose sanctions.
• Is collegial, has a recognized oversight body and encourages member engagement. Professionals respect peers even when competing, the body monitors competence and disciplines, and members volunteer to help shape the values they will follow.

A professionan occupational community with education, expert knowledge and a framework of behavior

• Sets the standard Memorize
  • Normalizes behavior codes and standards, complementing regulation
  • High entry standards examined entry beyond academic credentials
  • Body of expert knowledge built from best practice
• Keeps it met Memorize
  • Continuing education continuing professional development
  • Monitors conduct self-regulation, sanctions
  • Recognized oversight body resources, information, discipline
• Serves others Memorize
  • Client focused fiduciary duty; client before self
  • Service to society goes beyond the code
  • Collegial and engaged respect for peers; members shape the values

No profession stands still. Greater transparency, new technology and public accountability keep forcing change. A profession that has existed for centuries still adapts, and a young one has more gaps to close.

Why does investment management need high standards?

Clients hand over their savings and rely on professionals who know far more than they do. That gap is information asymmetry : the client cannot easily judge whether the advice is good, whether fees and conflicts are fair, or whether a good result came from skill or luck. Because quality is so hard to see, clients must be able to trust the person, and a profession’s standards stand in for what the client cannot check.

Trust also has a market-wide value. Where participants are trusted, savers are willing to invest, transaction costs fall, and capital is allocated more efficiently. That is why practitioners, clients, regulators and governments have all backed the development of an investment management profession.

Investment management is a young profession. It meets most, but not yet all, of the expectations of a profession. Not everyone doing the work has specific training or belongs to a professional body, and recognition by regulators and employers lags older professions. In most countries, some certification or licensing is needed to practice, and the global trend is toward examined entry and ongoing competence.

What is professionalism in investment management?

Professionalism is competence plus ethics, applied consistently, with client interests first. A professional uses specialized knowledge in service to others. Career and employer may benefit, but they are not the point.

For CFA charterholders and candidates this is made concrete in the CFA Institute Code and Standards. They must meet the highest standard among those set by CFA Institute, regulators and the employer, sign each year that they comply, and keep their own competence up to date. Where client interests and market interests conflict, the Code and Standards make duty to market integrity the overriding obligation.

Exam tip When an option names a feature of a profession, ask: does it set the standard, keep it met, or serve others? Lobbying and open membership do none of these.

Go deeper Self-regulation and government regulation

Self-regulation means a profession monitors and sanctions its own members. It works because members have a shared interest in the profession’s reputation, and because practitioners understand the work well enough to write workable rules. Regulators therefore often recognize professional codes and lean on them rather than writing every detail into law. The two are complements. A profession that fails to police itself invites tighter government rules, and a profession that earns trust may keep more freedom to manage its own affairs.

Go deeper Why investing emphasizes client outcomes over product sales

A salesperson succeeds when a product is sold. A fiduciary succeeds when the client’s goals are met. The two can pull apart: a higher-fee product may pay the firm more than an equally suitable cheaper one. Professionalism means saying so and putting the client first, and disclosing conflicts, risks and fees fully. Laws differ on this. Some countries require advisers to act in the client’s best interest, while others only require recommendations to be suitable, so a professional standard often asks for more than the law does.