The current predicament of world markets is an example of the significant material effect of unethical practices among financial services firms, according to CFA Institute member Frank Dohn.
"When people ask how much does ethics matter or does it matter, the consequences can be enormous," Willmington Trust managing director Dohn told a CFA Institute workshop.
Breach of investors trust is the key factor and this in turn leads to wider ramifications such as risk aversion and a higher cost of capital.
"When clients are not served in their best interest, people steer away from markets and that's certainly what we've been seeing in the last six months," Dohn said.
"The other by product is cost of capital. Try issuing a corporate bond issue right now and see what your yields are, if you can."
Increased volatility was another factor Dohn identified that could be attributed to poor ethical standards.
"Over the last nine months the volatility factor has been three or fourfold compared to the prior three years and it's a negative for clients, for firms, and of course investment managers are directly affected," he said.
All of these factors could end up leading to an increase in regulation which Dohn thought would be an unfortunate result for capital market operations.
