F. Financial Services

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Published in Finance Magazine, January 2001.

The DIRT enquiry on unethical behaviour in the financial services industry. Phenomenal growth in share prices of technology-based companies and privatisation of state organisations may appear to be unrelated issues. Yet they suggest to me that this may be a good time to reflect on the education appropriate for those working in the Irish financial services industry.

by Finbarr Bradley

The DIRT enquiry on unethical behaviour in the financial services industry. Phenomenal growth in share prices of technology-based companies and privatisation of state organisations may appear to be unrelated issues. Yet they suggest to me that this may be a good time to reflect on the education appropriate for those working in the Irish financial services industry.

The design and content of programmes offered by universities and professional bodies generally follow the same approach. Individual course offerings such as accounting, economics and regulation are combined to form a programme although it is often difficult to identify any overall theme or objective. The content of a course stands on its own, founded on the transfer of knowledge, techniques, formulae, rules of behaviour and so forth from the instructor to students.

Even though access to and availability of information itself is now widespread through the internet, its acquisition in a classroom still remains the fundamental building block of financial education. Whether information rather than its educationally richer relative, knowledge, is acquired by students depends on the calibre and commitment of the individual lecturer.

However, in the new economy, value is created far more by intangible assets such ideas, ways of working, emotions and the culture of organisations than either information or knowledge. Perhaps programmes suitable in the past now fall short in supporting this new environment.

Take accounting and financial reporting, for example. Both are increasingly irrelevant for capturing the value of knowledge-based companies. Accounting records transactions while value is created or destroyed when new legislation, technological breakthroughs or co-operative arrangements occur.

Investment Regulation or Ethics courses are another example. These usually offer prescriptive rules to ensure compliance with statutory legislative and regulatory requirements. In reality, moral considerations should be one of several factors such as risk, return or liquidity which must be balanced within the integrated decision-making framework of a financial services organisation.

In my view, the key change in perspective necessary to cater for this new environment is that programme building blocks should be founded on the concept of added value. Instead of stressing students’ ability to remember facts, programmes should help them understand, share, trade and increase value. In other words, their own values and those of the organisation should be compared with market values to balance the self-interest of different stakeholders. In this way technical knowledge about portfolio theory or regulations would be placed in a proper context within which the student learns. Understanding financial risk, for example, should be based on replicating the dynamics of the real world so executives learn to identify and use risk management instruments by determining optimal strategies for handling exposures faced by their organisations. Each situation then requires a different solution rather than one right answer.

Visualisation, simulation and interactive multimedia educational technologies could form an important element in this new approach. Learning, rather than an individual experience, would be a team effort. This would differ substantially from the existing approach in that participants of necessity would learn or acquire knowledge in order to work as a team and achieve group objectives. The traditional roles of instructors as presenters of facts would be altered to that of facilitators and coaches while access to information would be available through the latest in database technology.

Nor should this approach to financial education be confined to the private sector. Just as the objective of private sector managers is to produce private value, public sector managers should discover and produce public value. Privatisation of state companies and creation of public/private partnerships to create market-driven, customer-oriented relationships typify a new dynamism in this sector. The appropriate education for those engaged in such activities should help them understand how to balance market and non-market values, focusing on the needs of stakeholders such as staff, customers, government and suppliers.

Increasingly, the marketplace is intruding into areas once founded on public service or civic virtues. Investment guru George Soros in his recent book, ‘The Crisis of Global Capitalism’ shows that the substitution of transactional markets based on money, as distinct from non quantifiable relationships based, for instance, on trust or integrity, will result in the need for individuals equipped with a new range of competencies. The most successful companies in years to come will be those whose staff balance financial goals with those of social obligations.

Educational institutions find it especially difficult to design and deliver appropriate programmes for this new environment. Their structures, largely based on preserving the autonomy of academic disciplines, means cross-disciplinary approaches are difficult to develop. This offers organisations like the SIAI with a special opportunity to be at the forefront in designing innovative programmes which suit the long-term development needs of Irish finance professionals.

Professor Finbarr Bradley was the first Director of the MSc in Investment and Treasury programme at Dublin City University (DCU).

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