Investors have lost trust in the integrity of public financial markets and it is hurting the financial services industry. Investors have come to view the stock market as a platform for high-speed, short-term, often insider trading rather than long-term investing. The stock market looks more like a high stakes gambling casino to many investors than an investment marketplace. To make matters worst, it appears that the investment ‘deck of cards’ is stacked against them.
A recent survey of more than 1,000 registered investment advisory firms by Charles Schwab reveals that investors’ distrust of financial institutions and advisers is hurting the industry. Specifically, the survey found that it cost advisers 20 percent more to win a client’s trust in 2011 than it did in 2010. (“Your Practice: Investor distrust hurting advisers’ bottom line,” Reuters). Big brokerage firms and online brokerages are reporting a similar lack of trust.
Loss of investor trust and confidence should not surprise anyone. The never-ending stream of financial abuses and outright frauds, especially those involving nontraded REITs, private (Reg D) offerings, and other alternatives investments, have made many investors more aware of the serious conflict of interest at the very core of the adviser-client relationship ? that fully explaining all the material risks of an investment or investment strategy makes it more difficult for both advisers and securities salespersons to make money in the short term.
The loss of investor confidence is not something that another financial bubble can fix. Better regulation and enforcement as well as fair investor dispute resolution are needed.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.