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Guest Editorial The Current State of Ethics in the Financial Services IndustryThere definitely appears to be a growing problem with ethical behavior in our industry. It seems everyday that there is a new article in the financial press that is about a breakdown in ethics with a company in the financial services industry that leads to disciplinary action by one government agency or another. In addition, those in the industry know that we receive notices from our own regulators citing numerous suspensions, revocations, disciplinary actions against individuals in our industry that never make the papers. When you read the descriptions of the misdeeds these so-called professionals did to enrich themselves at the expense of those who trusted them to manage their money, you become very concerned with the ethical state of the financial services industry and those who work in it. Absolute Standards Some would say that the deconstruction of ethics in our industry is a reflection of our society. There may be some truth to that but that subject is best left to another writer. Where society may consider ethical relativism as a personal philosophy, we cannot do the same in the financial services industry. We must have absolute standards of ethical behavior or our industry and our businesses will not survive. In fact, those who do business with us need to hold us to higher standards as well. Does this mean there are not gray areas in our standards? No, there are situations where the right thing to do may be difficult to ascertain. Nonetheless, there are also some standards that must be absolute to keep the public's and plan sponsor's faith in our industry. For instance, the standard that we must not steal money from our clients' accounts is an absolute standard. There is no gray in this ethical standard. If I remove $10,000 dollars from my client's account and spend it for myself, no one is going to dispute that what I did was wrong no matter how badly I thought I needed the money. In our industry, unfortunately, this example is not uncommon and the reason why many financial services personnel lose their ability to work in this field. But what if I purposely over-billed the client, or put the client in an investment that paid more commission than another with less benefits, or had hidden fees in my 401k program that I did not disclose to my plan sponsors, or allowed a market timer to come in and profit from my clients accounts as long as I made some extra money? These are also examples of stealing money from clients which may be less obvious but just as wrong. As we all know from the recent market timing scandals, it was not a question of whether or not it was wrong, it was a breakdown of ethical standards of the people making the decisions. Greed got the better of them. If they had higher quality and more serious ethical training, they may not have made the same decisions. Ethical Training One of the problems is that our industry has thousands of meetings about new product training, investment analysis, how to market financial services, technology training, etc., but how often do you hear of a conference on ethical training? You don't. Ethical training is usually the last thing on the agenda and the point where many people choose to go home early. I will be giving ethics training for Certified Financial Planners and insurance agents at an upcoming FPA conference that is an optional program, not even part of the main conference agenda. We are still not taking this seriously enough, even after all the billions of dollars in fines that have been paid in recent years. How much will it take? Even our professional training programs such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) do not have stand-alone ethics training that must be passed in order to get your CFP license or CFA charter. You can pass both programs and never get a single ethics question correct. The same applies to other recognized programs such as the Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC). Although all of these designations require that you sign a document saying that you will adhere to a code of ethical standards, you do not need to know anything about those standards to be a designation holder in good standing. Solutions We must change our thinking about ethics in financial services to the point where the ethics part of our conferences are the most highly attended. Companies need to spend more time, attention and money on the ethical training of their employees. Our professional certification programs and licenses need to have a stand-alone ethics section that must be passed in order to be a certified or licensed professional in our industry. Plan sponsors can also help by holding those they do business with to higher standards. Your request for proposals should include ethics-based questions. It should be an important part of your selection process as well as an on-going program of monitoring the ethical standards and conduct of your current investment managers and consultants. Sponsors also need to be less forgiving of financial services companies who violate ethical standards and who are often let off the hook by sponsors because of lethargy. It is sometimes easier just to stay where you are than move to another more ethical firm. This is wrong and may violate your fiduciary obligations to your employees. Your employees deserve not only to be reimbursed by the companies that violated their trust, but also to be moved to another company that does business ethically. Conclusion By taking these actions we could have a powerful combination of increased ethical training by financial services companies, stand-alone ethical exams for professional licenses and certifications, and be held to higher standards by plan sponsors that would help our industry and ultimately benefit those whom we serve. I hope that our industry and our sponsors will begin to give this problem the time and attention it needs. We will all benefit from a more ethical business environment. ### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise. | ||||
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