Restoring Ethics and Integrity to Financial Markets

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Dec. 12 (Bloomberg) -- John Rogers, president and CEO at CFA Institute and Ralph Schlosstein, CEO at Evercore Partners, discuss how to restore a high level of ethics to the financial industry on Bloomberg Television’s “Bloomberg Surveillance.”

Current lack of trust in the financial industry.

There is a lack of integrity in markets.

Is this because of too much government relation or not enough regulation?

It is a tale of 2 cities could investors are optimistic about local economies in the first box to other asset classes, but as you said, still do not have a lot of confidence in the market itself.

That is caused by 2 factors.

One is lack of ethical culture at the firm level.

The second is the systemic risks around bank, derivatives, and systemic risks.

You are talking about compliance and making sure that employees know what the boundaries are?

Comes down to tone at the top, professional standards, and it comes down to the cultural values of the firm itself.

Let's talk about the cultural values.

Ralph schlosstein with us.

To me, ralph, this is incredibly solvable.

Bonuses, compensation, led by ethics much derived from the income statement.

When are we going to have a uniform compensation structure not based on revenues, not based on unit sales, not based on going from number four to number two and if you don't do it in a 9 months, you're out the door?

That is wall street, isn't it?

Well, i think you have a clash of objectives on wall street.

Clearly we went way too far in the other direction.

There is an entrepreneurship and capitalist system which encourages making money.

A higher return on equity.

Clearly, wall street went way too far in that direction.

Every day, every employee in one of these large firms is balancing the interests of making money and am i doing absolutely the right thing?

Clearly, what we need is a world -- that is where the tone at the top is critical -- where they always do the right thing and then make as much money within that constraint.

John rogers of the cfa institute -- i should point out that i'm a member of mr.

Rogers' organization.

Within what you just heard mr.

Schlosstein said, can we have a self policing effort, or does the government have to step in?

Trust in the markets is a three-legged stool, and the first is caveat emptor.

Investor education matters.

Appropriate policy by galatian matters.

Enforcement of the existing rules, but without that firm- level culture, that self policing, self-control, the whole system.

-- the whole system falls down.

We have a discussion about the fiduciary standard.

Should brokers and insurance agents be held to a fiduciary standard when dealing with customers?


In terms of what to do with that money in 2014, your survey finds that equities with asset classes have the highest expected return next year.

This is even with stocks at record highs and european stocks at multiyear highs.

Should people take this as a contrarian indicator?

They often view sentiment that way.

This is not an absolute return question we are talking about.

Commodities and precious metals have dropped in terms of relative expected returns, and equities remain at the top of the heap with bonds and cash trailing far behind.

We have had an amazing year in the equity markets.

Our members still feel that equities are the most attractive asset class.

When taking a look at financial stability, what is the distinction of our government response validity versus the bank, versus in a visual response validity?

-- versus individual response ability?

The more rapid disclosure of impaired assets and higher capital adequacy levels are 2 things that banks themselves can choose to do even without government relation.

John rogers, thank you so much.

This text has been automatically generated. It may not be 100% accurate.


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