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Robin Powell






An experienced television journalist, Robin runs Regis Media, a UK-based content marketing consultancy which helps financial advice firms around the world to attract, retain and educate clients.

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Bogle: How to restore professional standards in investing

If you read nothing else today, you should read Jack Bogle’s new essay in the Financial Analysts Journal. It’s called Balancing Professional Values and Business Values, and it looks at how, in asset management and financial advice, too many firms are getting that balance wrong.

Bogle’s starting point is that finance is a profession. But, he says, it’s also a business in that companies financial professionals work for largely exist to maximise profits. It’s not an easy balance to achieve. Of course, it isn’t easy either in fields such as law, architecture, engineering or medicine; but, Bogle argues, the conflict between professional values and business values is especially stark in investing.

Inherent vs perceived value

To illustrate the point, he compares investing to the car industry. As well as an inherent value, cars also have a perceived value; for example, we might choose a particular car for the prestige or the inward satisfaction it gives us. Investing, on the other hand, is almost entirely about inherent value. Client satisfaction can be measured almost entirely in dollars, pounds or euros. The client will either have enough money to achieve their goals — whether it’s funding their children’s education or securing an adequate income in retirement — or they won’t.

How did it happen?

The essay highlights a number of reasons why investing has become more of an industry and less of a profession over the years; they include new technologies, the growing importance of making money, the explosion of trading volumes and the rise of institutional ownership.

In themselves, Bogle implies, none of those developments is a bad thing, but what does concern him is greed, and the extent to which the interests of financial professionals override those of the consumers they’re supposed to serve:

“Earning large rewards through aggressive investment strategies that have proved successful in the past — or by marketing those strategies to clients — is hardly improper. But greed unbound is inconsistent with professional conduct.”

What’s the answer?

Bogle argues that the way to redress the balance is to get “back to basics”. Investment professionals, he said, should read what Adam Smith and Benjamin Graham had to say about the importance of serving the customer and maintaining their moral and intellectual integrity.

“Ultimately,” he writes, “the future of today’s beleaguered financial system will depend on the actions of enlightened, intelligent investment professionals who consider the interests of their clients and our society their highest priority.”

Four key lessons

Bogle then goes to suggest four main things that advisers and other financial professionals should be doing to ensure they strike a better balance between professional and business values:

Develop competence. “The goal of competence is never fully achieved; it must be reinforced every day through a commitment to continuous learning.”

Cultivate a sense of history. “Learning from the mistakes of others is a lot cheaper (for both you and your clients) than learning from your own mistakes.”

Be sceptical. “Never look at a number and accept it at face value. Go behind the figures, analyze the supporting data, and draw your own conclusions.”

Be a true professional. “Be independent and objective. Understand the financial position, risk tolerance, and return objectives of each of your clients. Exercise due diligence in analysing investments. Fully disclose your fees.. Communicate with your clients straightforwardly. Disclose all your conflicts of interest. Exercise loyalty, prudence, and care, and ensure that your clients’ interests come first.”

So, what would Jack Bogle make of you and your advisory business?

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