Is Finance a Profession?

During a recent speaking engagement at Wake Forest University's School of Business, I discovered a goldmine of academic thought and analyses regarding the distinction between a business and a profession. 

For example, "Is Business a Profession?" is the name of an undergraduate course taught by Professor Matthew Phillips. It's also the subject of a new book – Honorable Business – by Professor Jim Otteson. And it's the focus of a white paper by Professor Sean Hannah titled "Towards a Noble Profession of Business" (which is one of the most cogent explorations of the subject I've ever read). 

All of this helped bring into focus a question I've been thinking about for years: Is Finance a Profession?

What Distinguishes a Profession?

Upon further reflection, I've concluded that some segments of finance are professions. Some are evolving into professions. Some aspire to be professions. And some never will, nor should they be. 

To understand my reasoning, it's important to start with the characteristics of a profession as identified by the academics referenced above: 

• Professional Ethos: “The canon of values beliefs duties and norms that define how business will be approached and conducted,” Hannah suggests.
• Codes of Conduct reflecting those shared beliefs and which, in the words of Otteson, describe “a moral mandate to use one’s limited resources of time, talent and treasure to provide value… by providing value to others.”
• Credentialing, which helps establish a quality standard.  
• Continuing Education.
• And, perhaps most importantly, a sense of Fiduciary Responsibility to buyers, customers, clients and society as a whole.

These are all features society associates with professions like law, medicine, accounting, architecture, and engineering. 

The Professionals of Finance

By these benchmarks, the field in financial services that seems closest to being a profession is asset management. The rules and regulations governing this business were established by the Investment Advisors Act of 1940 and years of legal precedent. Those rules and regulations impose a fiduciary duty on anyone who provides investment advice for a fee. Many of the analysts and portfolio managers employed by asset management businesses are Chartered Financial Analysts (CFAs), required by the CFA Institute as charter holders to pass a rigorous three-part series of examinations and to live and work by a professional code of ethics. 

Close behind (and closer than most people fully appreciate) is wealth management. 

The dominant business model for financial advisors has evolved over the past several decades from commission-based brokerage to fee-based advisory, where financial advisors are held to a fiduciary standard on much of the work they do for clients. 

Today's financial advisors generally are far more highly trained than the much-maligned "stock broker" of the 1960's and many hold credentials like the CFA, or Certified Financial Planner (CFP), whose code of ethics requires members to act as fiduciaries, or a host of others including Certified Investment Management Analyst (CIMA), Certified Private Wealth Advisors (CPWA), Chartered Financial Consultant (ChFC). 

Many financial advisors won't work with a client without some form of financial plan or discovery process, which allows them to determine which products or services best fit those clients' needs (which one would expect a fiduciary). 

Not entirely. Not yet.

So why, then, isn't it possible to make a blanket declaration that finance is a profession?

Because not all businesses in finance operate under a fiduciary standard, have codes of conduct, certify their employees, or even have a professional obligation to their clients. 

Writing about Goldman Sachs in his contribution to my book, A Force for Good, longtime industry observer Charley Ellis points out, "Most of the organizations Goldman Sachs work with are not clients. Some are customers – even important customers – but not clients. And still others are not customers, but counterparties." A financial services firm's duties to clients vs. customers vs. counterparties are subtly but importantly different. And many consumers of financial services are not aware of those differences. 

Generally speaking (though not always), professions refer to the people and organizations they serve personally as clients. People who have checking accounts, credit cards and lines of credit at a bank are generally referred to as customers. Investors who deal with stock and bond traders are most properly called counterparties, not customers or clients. Financial firms are obliged to ensure products and services are suitable for their customers. They are obliged to deal fairly with counterparties. Both are lower standards of care than the fiduciary standard that applies to clients of professionals. 

A Matter of Trust

There is another reason it's not possible make an unqualified statement about finance as a profession. 

As Professor Hannah warns, "A business... cannot simply declare itself to be a profession. Professions are granted status only when they earn it from the constituents they serve. It is clients and broader society... who will determine... a profession". 

A little more than ten years after the financial crisis of 2008-2009, finance remains the least trusted business sector globally, according to the 2019 Edelman Trust Barometer. And a recent survey  by RealClear Opinion Research shows "45% of Americans say Wall Street and investment firms make it harder for them to achieve the American Dream." By Professor Hannah's standard, there's still a lot we need to do before broader society views us not through the lens of caveat emptor, "let the buyer beware", but through the lens of credat emptor, "let the taker believe in us."