Answers to some of the most frequently asked questions in the Global economy.
In the past it was assumed that all that had to be done to ward off bad behavior and unethical practices in the financial industry was to put in place regulations to help guide and encourage ethical behavior in the marketplace. However, regulation is no longer a guarantee of ethical behavior.
Billionaire Warren Buffett acknowledged the need to put measures in place to make sure that this behavior is practiced on a daily basis with his execs. Buffett has told his managers that there is a difference between what's legal and what's ethical. "Let's start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of our local paper."
"A good name is to be chosen rather than great riches, and favor is better than silver or gold".
Proverbs 22: 1 (esv)
Here are some questions with answers that I hope are helpful and that will provide some form of guidance.
1. How do ethics affect the stock broker on Wall Street?
a. Misleading the client
i. When a broker is dealing with a client, the client is of the impression that he / she is dealing with a professional. Giving in to bad practices that promote laziness on behalf of the broker is a sure way to make oneself vulnerable to conduct unbecoming a broker. This can also cause that broker to lose his license as an investment banker or a broker / dealer. The broker should sticks to the facts as is relates to the advice that the investor seeks. For example, if the investor is seeking further clarity as is relates to a group of mutual funds, his answer should not be ambiguous due to the broker being bias. Keep it simple and clear.
b. Lack of full disclosure
i. All too often we are looking for the easy way out of things. When it comes to financial matters one can never be too detailed. The investor expects full disclosure. Never take short cuts in the name of expediency. Besides, if something goes wrong in the market, you would have peace in your mind knowing that you served the client well. The broker is obligated to making sure that when the investor buys a product from him that the investor is making an informed decision.
c. Breach of Confidentiality
i. This is the "holy grail" to long life in this industry. If a broker breaches client confidentiality, he can kiss his career good-bye. This is like have a bad rap sheet that follows you everywhere you go. The broker can face possible reporting to the Securities and Exchange Commission (SEC).
d. Neglecting to offer Alternatives
i. It is said that a person who works on commission will tell you anything they believe you want to hear to close the deal or sale. This is why Insurance Professionals, Car Salesman / woman and Realtors have a hard time with people trusting them. People don't feel confident that they are being given all the facts and options that are available to them. That they are only being told what the Salesman wants them to know, to streamline their options so that the decision that is made will be to the benefit of the salesman. The broker should not allow this to be said of them. Trust is the key to building long lasting relationships. Give your clients options, and help guide them in their decision making – they'll do the right thing and you would have gained a possible long term loyal client.
"The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty"
Proverbs 21: 5 (esv)
In The Next Issue:
Question 2: What are some rules a broker should follow?