Leadership in Financial Services, and Our Value to Society

Each year the Edelman Trust Barometer is produced, it rates the level of trust across many different industries, and unfortunately financial services and banking is typically rated the least trusted of all. This is interesting because the financial services industry is built on trust. In fact, the Latin word for trust, “credere” gives us the word “credit”.

Our leader, Professor Jason Hsu, compares the trust in our industry to that of herbal supplements, or the vitamin industry. We have no idea if there is any actual benefit until after ten, maybe twenty years of regularly taking these herbal supplements, so there is a lot of trust that the products work and the company selling them have done their research. Similarly, you must be with a financial firm for many years before you know if the firm has added value to your financial position and in the meantime, you go on trust.

Importantly, whenever a product is trust-based in the buying decision, it opens itself up to potential abuse of that trust. If someone is skilled at earning trust, they might take advantage, and then begin to erode the trust. Not just in their own personal relationships, but more broadly in the industry. This is a terrible problem as the financial industry is built on the concept that it can be trusted. Moreover, how can leadership within the financial services sector make much needed change happen?

Our response is that ethical leadership is a pre-requisite to success in business. Indeed, our parent company, Rayliant Global Advisors’s founding energy is of a “Scholar Guide”; we are a guide to our clients, and we hold ourselves to the highest level of academic knowledge and expertise. We will always lead with client education about the conflicts in our industry and share knowledge about harmful industry tactics, which lead to poor client outcomes. Rayliant’s management team decided that this is what will make us truly special.

Part of this is that we actively repel people who are attracted to this industry for the fast money and little concern about the purpose of their work. In a very competitive culture, there is a lot of “winner takes all”, ego and swagger that comes from being the top dog and the best paid. It is a zero-sum game (in order for me to win, you must lose) which creates a culture that generally isn’t very collaborative, but one of sharp elbows. When something goes wrong, which it inevitably does, there is a lot of finger pointing by people wanting to get ahead, because a more reflective approach of accountability is viewed as weakness.

Henderson Rowe likes to be successful, but our energy is on “how”. Our focus is on the spirit of service and stewardship, and the way we like to achieve success is by building a process-led organization, and by attracting people who are aligned to this energy of service. By leading with the Scholar Guide, professionals craving purpose are included, along with others who want to behave with integrity. We hope we will have success doing this, and Henderson Rowe will be a beacon of light in the industry.

Our leader, Professor Hsu, asks himself “If I wasn’t around, if I had taken a different path in life, would that make any difference to the world other than to myself?”. The Financial Services Industry is there to create service and happiness and value to society more broadly. The industry is full of very smart people, who can be incredibly productive given how smart and hard working they are, but have we created a place to really translate that intellect and hard work into value for others or have we simply encouraged them to go out and maximise dollar signs for themselves?

The Scholar Guide answers this riddle of creating wealth for ourselves via creating value for others. I can think of few more fulfilling goals in life than generating a lot of consumer surplus for others and being rewarded fairly for good quality work. It’s not a crazy model; it’s how most other industries work. It’s a funny thing that, for ours, it could be a major transformative disruption!

Part of this, Jason is currently co-drafting a Manifesto of the International League of Ethical Financial Services Leaders. It believes that society is poorly served by many parts of its social, political and business ecosystems. One such ecosystem is the Financial Sector. And whilst the Financial Sector has many virtues and virtuous people within it, we must also acknowledge and confront its current flaws. These include but are not limited to:

• conflicts and misalignments of interest;
• short-termism;
• lack of transparency;
• hidden costs and risks;
• insufficient client-centricity;
• scams and scandals;
• ineffective regulation;
• problematic reward mechanisms;
• ‘profit before purpose and principles’ mindsets;
• ‘money before morals’ mindsets;
• poor governance; and
• lack of market integrity.

In this context, ethical leaders are those who proactively seek to maximise the Financial Sector’s value to society. Beacons to rally around, and hopefully to do good.

The full interview with Jason Hsu can be viewed at: https://www.youtube.com/watch?v=yRVtUfOucQY&t=698s