April 2018

CFALA e-Newsletter: April 2018

Welcome to the CFALA e-newsletter, a periodic publication with stories about noteworthy events and programs sponsored or hosted by the society, guest articles by members, book reviews, and other items of interest to CFALA members. Click on the headlines below to read the full stories. And if you’d like to contribute a story suggestion or, even better, write an article, we’d love to hear from you. Please email Executive Director Laura Carney at laura@cfala.org.

*Please note that the content of this e-newsletter should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Society Los Angeles.

In this issue ...

Filling The Gap Of Investor Trust

It’s hard to place complete trust in a person. Whether entrusting them with your child, your health or your financial portfolio, there are numerous ways for that person to reassure you of their bona fides. A babysitter offers references from local families to reassure a set of new parents that they can leave their newborn at home. Doctors display their myriad degrees and certifications on the wall for their patients to see. And financial advisors follow ethical standards and regulations to serve in the best interests of the client.


Yet even with references, degrees, and commitments, there are still doubts in the client’s mind. The onus is placed on the service provider to clear up as many doubts as possible. It helps, then, if there is an effective dialogue between the two parties.


CFA Institute published a global survey on investor trust titled The Next Generation of Investor Trust on March 26. Included in the parameters of the survey were 12 national markets—including  US, Brazil, and India—and more than 3,000 retail investors and 800 institutional investors responded. Financial Advisors should note the significant gap between investors’ high expectations from the relationship and their general lack of satisfaction with the realities of the relationship. 


Take fee disclosure as an example. CFA Institute’s survey reports that 84 percent of retail investors place high importance that their financial advisor “fully discloses fees and other costs,” but only 48 percent of those retail investors are satisfied with their advisors in this facet.


That 36 percent gap between expectation and satisfaction levels is emblematic of the feelings retail investors have toward their financial professional. There’s a 29 percent gap between data security and protection importance and the corresponding retail investors’ satisfaction levels (84 percent rate it as important, while only 55 percent are satisfied). The highest expectation-satisfaction level gap was in relation to an advisor’s potential conflicts of interest. 80 percent of retail investor responders feel it is important for the advisor to be “forthright about disclosing and managing conflicts of interest.” Only 43 percent are satisfied in this regard, however.


Institutional investors reported smaller expectation-satisfaction level gaps than retail investors, ranging between four and nine percentage points. Still, financial advisors are not exceeding any of their institutional investors’ expectations.


However, there is good news to be found in the PDF. The Next Generation of Investor Trust, the latest in a string of research administered by CFA Institute on the future of finance, finds that overall investor trust in the finance industry has increased over the past few years.


“We are pleased that investor trust has increased since 2016. We attribute this to rising levels of professionalism in our industry. CFA charterholders are growing in number around the world and are carrying the message forward: as fiduciaries, as stewards of our clients’ money, we must act in their best interests at all times,” says Paul Smith, CFA, president and CEO of CFA Institute.  “But there is work still to be done,” he adds. “Higher trust comes with higher expectations, and we are not there yet until we can consistently prove our value to clients by providing solutions, not simply products. We need universal disclosure of fees and performance to drive home this message.”

The survey was released in correlation with the start of the Putting Investors First campaign, which runs through May 13 and the CFA Institute Annual Conference in Hong Kong.

Andrew Elmers Back To Top ^^


The November/December 2017 Financial Analysts Journal contained a very good article on ethical decision making. The title, Ethical Decision Making: More Needed than Good Intentions outlines how easily it is for otherwise good people to fall into a trap of unethical decision making.   

To summarize, there are 11 common behaviors that can lead otherwise good people to exhibit bad behavior.   It is important to understand the premise behind influence methods in order to recognize and stand up to them when needed.  

The 11 behaviors that put us at risk are:  

  1. obedience to authority
  2. conformity bias
  3. incrementalism
  4. groupthink
  5. over optimism
  6. overconfidence
  7. a self-serving bias
  8. framing
  9. trying to recoup sunk costs
  10. favoring tangible close and near term rewards over damage in the long run
  11. loss aversion

The author cites 4 elements required to correct judgments impaired by cognitive bias:

  • Be aware of the cognitive biases you face.
  • Be motivated to correct the bias.
  • Be aware of the magnitude and direction of the bias.
  • Be able to adjust the response accordingly.

The odds of maintaining ethical behavior are greatly increased by knowing what the cognitive biases are. Correct the bias by challenging your decisions (i.e., strengthen the decision making process by including acting as “devil’s advocates” for alternative views.)  

Carefully consider your decisions and those around you and then act courageously to speak your mind.  Our industry and profession are strengthened by each of our efforts on improvement.


Carol Poundstone Olson, CFA Back To Top ^^    

Behavioral Finance REcommended reading

The CFA Society Los Angeles Applied Behavioral Finance Community of Interest seeks to take a leadership role in advancing applied behavioral finance. Recently, committee members were asked for their behavioral finance book and article recommendations. The results are as follows:

Recommendations from the CFA Los Angeles Applied Behavioral Finance Member Community: Scott Laudeman (Chairman), Jim Altenbach, Larry Brody, Rishin Doshi, Mark Harbour, Luke Kulma, Michael Lovelady, Sam Miller,  Andrés Ochoa, Ara Oghoorian, and Jonathan Rugg. For questions about this article or information about the Applied Behavioral Finance Member Community, please contact Scott Laudeman, CFA here. Back To Top ^^

The FATHER OF The world wide web is one disappointed dad

Engadget Contributing Editor David Lumb provides the highlights of world wide web inventor Tim Berners-Lee’s recent open letter to The Guardian critiquing and laying out future challenges for the web. Read more... And more...  Back To Top ^^     


According to Dan Frommer, Editor in Chief at Recode, the talk that generated the most discussion at this year’s TED conference in Vancouver was the one delivered by Jaron Lanier, a VR pioneer. Watch this timely, thought-provoking video (embedded) to learn what Lanier believes social networks have become. Read more...  Back To Top ^^    

AI v. lawyers: the ultimate showdown

Wall Street Pit reports on a study — apparently funded and published by LawGeex — indicating the superior accuracy of LawGeex’ AI contract review automation solution relative to twenty experienced, US-trained corporate attorneys in reviewing non-disclosure agreements. Read more...  And more...  Back To Top ^^    

Ai could reinforce gender inequality

In this WEF article, IMD Business School Professor of Strategy and Organisation, Bettina Büchel, alerts us to the fact that artificial intelligence, as we use it today, may only serve to reinforce gender bias. Read more...  Back To Top ^^   

this age group is most likely to fall for a phone scam this tax season

Due to a string of high-profile data breaches, Americans of all ages are more vulnerable than ever to scams, but which age group is the most likely to fall for one, and why? Read more... Back To Top ^^  

Financial aid funding cryptocurrency investments

The Student Loan Report founder and blogger Drew Cloud used Pollfish to ask a thousand current college students with student loan debt if they had ”ever used student loan money to invest in cryptocurrencies like Bitcoin.” Here’s what he learned. Read more... Back To Top ^^ 









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