Trust in Financial Markets and Financial Professionalism: Lessons from the Subprime Crisis
Center of Excellence "Cultural Foundations of Integration" University of Konstanz Konstanz, Germany
The paper explores financial professionalism as a key component in keeping financial markets trustworthy, arguing that it is in professional relations that trust in markets is generated. Such relations are found between investment advisors and their clients, both institutional and private. The paper discusses ways to sociologically operationalize the functions and the limits of trust in financial professionalism and presents first preliminary findings.
As a result of the promotion of professional forms of self-organization in the finance industry (Lounsbury, Preda), today financial occupations live up to classical sociological definitions of professionalism. They have a body of abstract knowledge acquired in higher education (business administration and economics); they apply this knowledge in a case-sensitive way with a client and her particular dispositions; and they actively cooperate in an expert-client relation. However, sociological theorization on the professions reveals also an ambiguity about the professions? capacity to contribute to the generation of trust. While according to Parsons professional action strengthens societal integration because it puts to work general values under conditions of particularity, Abbott interprets the rise of the professions as the result of a struggle for symbolic and strategic power in society. Apart from this controversy, Barner and Giddens see a decline on the trust that professions can generate due to a rise of lay expertise in contemporary knowledge societies.
Drawing on those sociological positions, the paper attempts to gauge the role of professional relations in the emergence of trust in financial markets. The present context of the subprime crisis provides an excellent opportunity for this. Empirically the paper refers to interviews with bank advisors in the Sparkassen Finanzgruppe and presents their interpretations of the impact of the crisis on their clients? investment behavior, their general trust in the financial markets, and their views on the client-expert-relationship. While it will be necessary to include more data, those interviews provide a first viewpoint on financial market trust and allow discussing issues like professionalism as a business ideology, the reduction of complexity through the fiduciary relationship, and the ways in which trust relations are strained (or not) by market crashes.