The damage is done and stock brokers have lost much of their good standing and public respect today
State-managed funds should have a proper good governance regime in place adhering to internationally-accepted best practices, says Heraymila Securities Ltd CEO Ravi Abeysuriya,
"It is imperative that state-owned institutional funds such as EPF, ETF, NSB, SLIC and others that manage public funds have proper governance structures by adapting globally accepted standards of best practice," emphasizes Abeysuriya.
"The investment profession stands at cross roads. Time has come for each and every one of us in this industry to take personal responsibility and act in an ethical manner to take our industry to a higher level. Now is the time for action to rebuild the confidence," he said.
"What happened to the Colombo Stock Market in 2011 and early 2012 has been distressing to those who had exposure to our stock market and to those who make a living from the industry. Although some have blamed SEC, CSE, retail investors, high net worth investors, state institutions such as EPF & NSB, politicians, the financial press and stockbrokers, all are culpable for the state of affairs today. The damage is done and stock brokers have lost much of their good standing and public respect today," lamented Abeysuriya.
"The painful truth is that investor trust in the investment industry has been diminished in recent years be it here in Sri Lanka or globally. Polls have shown that people mistrust financial advisors and believe most are greedy, dishonest and the game is rigged. The root cause of all these problems is a failure of self-control and shortsightedness. The erosion of values and morals of a few have made a whole industry suffer the consequences. People are tired of reading negative commentary in the newspapers about the stock market and certain investments made by state owned funds. The public will not see the good from the bad and the ugly."
Developing a relationship of trust is a foremost priority for finance professionals, he added.
"They always need to put their client’s interests ahead of themselves and never let their personal interests and temptations get ahead of doing the right thing for their clients. The compliance records of the best advisors are virtually spotless. They have to be principled individuals and have demonstrated those principles from the beginning of their careers. They recognize that they are in their careers for the long term with great deal of patience and are willing to make less money initially to develop a long-term relationship of trust. They know there is tremendous advantage in having satisfied clients, because satisfied clients provide referrals and are willing to bring more money in once the relationship of trust is established. When clients trust their advisor, they will follow their advisor’s guidance. A relationship built on trust takes time to earn; but once established it is priceless," Abeysuriya said.
According to Abeysuriya, funds managing funds on behalf of the Sri Lankan public have code of ethics in the lines of ‘CFA Institute Asset Manager Code’, which specifically state that asset managers should:
1. Act in good faith the best interest of the beneficiaries of the Funds i.e. EPF & ETC belongs to the members whose livelihood after retirement largely depends on performance of these Funds
2. Act with prudence and reasonable care.
3. Act with skill, competence, and diligence.
4. Maintain independence and objectivity by, among other actions, avoiding conflicts of interest, refraining from buying stocks at inflated prices, following orders from top management who have vested interests and refusing to take any kickbacks from service providers such as stockbrokers that could reasonably be expected to affect their independence.
5. Abide by all applicable laws, rules, and regulations, including the terms of the scheme documents.
6. Deal fairly, objectively, and impartially with all participants and beneficiaries.
7. Take actions that are consistent with the established mission of the Fund and the policies that support that mission.
8. Review on a regular basis the efficiency and effectiveness of the Fund’s success in meeting its goals, including assessing the performance and actions of scheme service providers, such as investment managers, consultants, and actuaries.
9. Maintain confidentiality of scheme, participant, and beneficiary information.
10. Communicate the performance of the Funds with participants, beneficiaries, and supervisory authorities in a timely, accurate, and transparent manner. (Information such as the year on year performance of EPF & ETF fund component invested on stock market benched marked against ASPI would help alleviate a lot of criticism about their investment practices).