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Truth and Transparency: The Importance of Ethics in Finance

Melissa Thompson

Are You Sending Clients the Wrong Message?

The financial crisis of 2008 stemmed, in large part, from unethical behavior and acts by those in the financial industry.

Whether driven by greed or simple lack of knowledge and awareness of industry ethical standards, the outcome was the same: the financial face of the country, and the world, was changed forever.

As a result, many investors are paying more attention to their financial professionals’ ethics, and doing more due diligence to ensure that the person they entrust with their hard-earned cash is going to manage it within the boundaries of the law and put the clients’ interests ahead of their own. Investors are asking more questions now—and if they cannot find the answers they need and want, they are walking away.

Therefore, as a financial professional, you have a responsibility to make sure that the message you’re sending to clients regarding your ethical standards is in line with your actual behavior. Some professionals inadvertently drive clients away by failing to answer questions or innocent behavior that could seem suspect, so you need to know what your clients are looking for.

Wrong Message #1: “Trust Me, I’m a Professional”

Many people seek out the advice of a financial advisor because they don’t have the knowledge and skills to manage their money as effectively on their own. However, because the term “financial advisor” can refer to many areas of expertise, it’s important that you’re upfront and clear about your experience and expertise from the start, and share information about your background with prospective clients.

Perhaps as important as an advanced degree from a rigorous program, are well-known professional designations, such as the Chartered Financial Analyst (CFA) designation. Randy Jorgensen, Ph.D., CFA, an associate professor of finance and director in the Master of Investment Management and Financial Analysis program at Creighton University, notes that the CFA Institute is dedicated to restoring the integrity of the financial industry.

student ethics

“Students in Creighton’s MIMFA program are prepared for the challenging CFA exam as well as a high level of professional competence. They graduate with two benefits—a valuable master’s degree and CFA-aligned financial expertise. They have the ethics and integrity to transform the financial industry into one that truly serves the best interests of our global society.”

In short, if you can’t prove that you adhere to the ethical standards of the industry in addition to demonstrating technical competence customers may walk away.

Wrong Message #2: Talking More Than Listening

Regardless of whether you’re governed by FINRA or SEC regulations, you have a responsibility to do what’s right by your clients—and how can you do that unless you listen? Even if you think that you have a good read on a client, it’s important to listen carefully to understand his or her specific priorities and goals.

Never make assumptions or put words in a client’s mouth; they may question your integrity and believe that you’re just trying to sell a specific product. It’s also important to speak in terms your client understands, and explain technical terms or concepts that they don’t understand. When you speak in jargon and don’t clearly elucidate your ideas and products, you lose the client’s trust—and they may suspect the worst.

Wrong Message #3: “Look at Me! I’m Successful!”

As a successful financial advisor, you have every right to enjoy the fruits of your labor. However, if you have a flashy office in a swanky area of town, you make it very clear how successful you are through your dress and mannerisms, and generally come across as if you have money (you know the type). Clients may question your principles.

flashy car

That’s not to say you need to set up shop in a rodent-infested strip mall and drive a 15-year-old Toyota, but clients tend to flock to the financial advisors who have a more understated demeanor and show success through their knowledge and actions, not their wristwatch.

Wrong Message #4: Change is in the Air

Change is inevitable. You may invest in a new, more efficient software system, make changes to the products and services you offer, or make other adjustments to your business model. However, if you make changes without explaining the rationale, or stop offering information that you did previously, it may be suspect to current clients. If you must make changes, be sure to explain why, and be prepared to offer additional information should client have questions.

Even if you act with integrity in everything you do, Americans are still a bit gun-shy when it comes to trusting financial professionals with their money. Be honest and upfront in everything you do, and avoid making mistakes that unintentionally send the wrong message.

Image Credit: RossHelen/Shutterstock
Melissa Thompson Member
Melissa Thompson is a freelance producer at CNN and a contributor at Technorati and NewsBlaze. She lives in Utah with her 2 children and enjoys skiing, hiking, working out, and sushi.