Why trustworthiness is important

Abstract:

Until the recent deregulation of the financial services industry, those who worked in finance were guided by a sense of duty. They had a fiduciary relationship with their clients which brought with it an expectation that they would put their clients’ interests first. But in the past thirty years this obligation has been superseded by a quest for sales and the pursuit of high personal pay-offs. Many of those working in finance turned from caring about the interests of their clients to single-minded pursuit of their own interests. This has led to a general breakdown of trust within the financial system. It is easy to exaggerate the degree to which financial sector employees ever really subscribed to an ideal of fiduciary duty. But such an ideal did exist. This book focuses on methods of restoring a sense of obligation to others as a means of rebuilding trustworthiness in the financial services industry. The authors do not see trustworthiness as likely to re-emerge in a world where those in finance act in a selfish manner. There is, however, a standard view that trust can emerge even with selfish behaviour. Under that account, trust develops as a result of repeated interactions over time; the desire for future profitable trades can create a constraint on cheating even amongst those who are selfish. But as Adam Smith made clear in his Theory of Moral Sentiments, this repeated-games idea leads to a shallow and unreliable form of trust, compared to the form which emerges from a sense of obligation to others.