“Too many laws, too few examples.” That aphorism, attributed to poet and French revolutionary Louis de Saint-Just, neatly describes the state of financial-regulatory-reforms efforts both in the United States and around the world.
On the one hand, there is no question much of the new regulatory rule making confronting the financial-services industry is a necessary and critical part of making the financial system safer, stable and more secure, and has already played a role in significantly reducing the level of risk embedded in the global financial system.
On the other hand, no amount of legislation, or regulation, or rule making will by itself prevent or mitigate the effects of future financial crises so that individual investors won’t have to live again through the trauma of watching their retirement saving decline by more than 50%, or question whether they will have the liquidity they need to pay their monthly bills.
Along with more capital and less leverage and more transparent derivatives markets and circuit breakers to prevent the next flash crash and better monitoring of systemic risks and expanded powers for regulators to deal with failing financial firms, we need to address one the of root causes of the crisis — the culture of the financial-services industry, which, make no mistake about it, is still broken.
The financial-services industry is, or should be, built on the core principle of stewardship. Stewardship defined as responsibly managing what others have entrusted to our care. Stewardship lived out through the practice of serving others (namely, our clients). When we do what we are supposed to do, when we live up to our mission and our purpose, the firms we work for are part of a system that connects people who have capital with people who can deploy capital and does so in such a way that everybody is better off. Our role is primarily an agency, or intermediary, role. Financial-services firms are (or should be) means to greater ends … not ends unto themselves.
Too many executives and employees of financial-services firms of all shapes and sizes lost touch with their stewardship mission, purpose and values in the years leading up to the financial crisis. And we have yet found our way back.
We have largely rebuilt the balance sheets of financial-services firms. We are making slow but steady progress rewiring the regulatory infrastructure of the financial-services system. But nothing I’ve seen suggests that we have reconnected, in any real or transformational way, to the cultural imperative that each and every one of the billions of transactions we execute each day in the global capital markets be measured by whether the world — through the welfare of our clients — is better off.
We have more than enough laws (and regulations). But at this point, there are still far too few examples of responsible stewardship in the financial-services industry.
It’s no secret that investors’ trust and confidence in financial markets, in the financial system, in financial-services firms remain deeply damaged. Investing, after all, is an act of faith. For investors to put their savings into stock and bonds and mutual funds, they have to believe that they will be fairly treated by market participants and that the value of their investments will grow over time. The financial crisis of 2008 and 2009 severely tested that belief. And since then, the flash crash, the logarithmic growth of high-frequency trading, the almost unimaginable spectacle of the United States of America flirting with default and the rolling sovereign-debt crisis in Europe haven’t done anything to restore investor trust or confidence.
In this environment of uncertainty and mistrust, it is all the more important that we, the financial-services industry, start behaving like responsible stewards. Until we do that, until we create a culture of stewardship throughout the global financial system, investors will remain on the sidelines; and what we all want will continue to elude us — namely, a safer, sounder, more resilient financial system that facilitates and contributes to economic growth.
Taft is the CEO of RBC Wealth Management U.S. and author of “Stewardship: Lessons Learned From the Lost Culture of Wall Street.”