Trust and transparency are essential to both markets and financial advisers

Two weeks ago, I had the pleasure of representing my firm, CapWealth Advisors, and our local Nashville Society of Chartered Financial Analysts in Hong Kong at the CFA Institute’s Global Leadership Conference. Nashville is one of 135 member societies of the CFA Institute located in 60 countries around the world. CFA Institute is a nonprofit investment education and membership organization. Since its founding in 1947, it has become the largest worldwide association of investment professionals.

Markets function best on the up and up

Many people think the CFA Institute is simply the organization that administers the CFA exams and awards credentials to successful candidates. But the organization is much more. The local CFA societies partner with the CFA Institute to advance a shared mission — to lead the investment profession globally by promoting the highest standards of ethics, education and professional excellence for the ultimate benefit of society. It’s a lofty goal but it’s so important for investors. There must be trust, professional competence and transparency in the world of finance. Another way of putting it: investors’ interests must come first. It’s both ethically and pragmatically right to do so because, under these conditions, markets function at their best and economies grow.

CFA Institute works to shape public policy and promote industry practices that do exactly that, putting investors’ interests first. The organization works with the Securities Exchange Commission (SEC) and other regulatory and legislative bodies on topics such as fiduciary duty, financial reporting standards, corporate governance, market microstructure, systemic risk and shadow banking. With perspectives from around the globe, the CFA Institute can be the voice for market integrity as opposed to commercial interest.

High-frequency trading tracked

High-frequency trading is a hot topic these days. This type of trading relies on powerful computers, big-bandwidth data connections and algorithms to buy and/or sell large orders at incredibly high speeds. Among the concerns: What kind of impact are these massive computerized trades having on the overall market? Do these traders have a market advantage in their access to proprietary data feeds? Are they engaging in abusive trading strategies?

High-frequency trading may have contributed to the Flash Crash in May 2010 and the recent wild Aug. 24 trading session that saw the Dow Jones Industrial Average open down 1,000 points, come back into positive territory by mid-day and then close down 588 points. The CFA Institute tracks the evolution of high-frequency trading in capital markets globally, educates the public on the impacts on market quality and integrity, and works with regulators and industry participants on public policy and regulatory initiatives to sanction this and other forms of manipulation and fraud. In short, the CFA Institute is the voice of all investors about the impact of high-frequency trading on the fairness of our markets.

Demand integrity in your adviser

I went half way around the world to meet a diverse array of my counterparts, to share experiences and viewpoints with them, and to learn from speakers and workshops. I also went halfway around the world to reconfirm something I already knew: that the CFA Institute is doing important work for charter holders (those who have earned the CFA designation) like myself as well as every investor.

Is your financial adviser a CFA charter holder? No credential is as widely regarded in the global financial industry for its rigorous focus on current investment knowledge, analytical skill and ethical standards as the Chartered Financial Analyst designation. That’s certainly not to say that you can’t get proven expertise and ethics from an adviser without the charter — there are a great many exceptional advisers without it. But my suggestion is that you put as much emphasis on seeing (or searching for) this kind of integrity in your adviser as the CFA does in its charter holders.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors LLC.