The famous author Samuel Johnson said: “Integrity without knowledge is weak and useless, and knowledge without integrity is dangerous and terrible.”
The recent collapse of some of the biggest names in the financial services industry has witnessed this thinking. While part of the blame for the financial crisis was attributed to the lack of a robust regulatory framework, it was largely the result of lowering ethical standards by management. This included performance evaluation and incentive structures that induced the sale of inappropriate and high-risk products without the need to prove sustainability, along with weak monitoring, reporting and disclosures. The events also shattered a common myth that as long as you don’t break the law, it’s ethical.
The cost of ethical collapse is often more than just regulatory fines and litigation. It leads to loss of image and reputation, increased scrutiny by internal functions and government agencies, and even demoralization and burnout of employees. On the other hand, companies that have consciously invested in developing a strong ethics program have actually seen benefits in attracting like-minded employees and business partners. Sales in this industry are directly related to trust, so a stronger company image increases sales in the long run.
The meaning of the Ethics dictionary is “The rules or norms that govern the conduct of a person or members of a profession.” Ethics in financial planning can mean a number of things, many of which are not precisely stipulated by law, such as acting in the best interest of the client by providing objective and honest advice, providing full information on risks and benefits, and transparency, fairness and professionalism. in all business dealings, whether in product design or customer service.
There are many elements that go into creating an ethical organization. Some that come to mind are:
Company Values: Values and expected behaviors set the tone for everything a company does. But it’s important to consistently communicate them through real-life examples and, most importantly, through consistent behavior from top management.
Policies and Training – Create policies that document purpose, procedures, roles and responsibilities, reporting requirements, and penalties for non-compliance. Reinforce the company’s culture, code of conduct, legal and regulatory obligations and policies through training.
Incorporate transparency and fairness into product design, sales literature, advertising, and all customer communications.
Reward and recognition: Make sure the incentive structure rewards the behaviors you want to encourage and includes values and ethical components in performance reviews.
Create robust risk management, controls, and audit programs to ensure issues are anticipated or highlighted early.
Whistleblower Protection: Create easily accessible channels for employees to escalate issues and have a robust process for investigating and handling such complaints. Protect confidentiality to the extent possible and ensure that whistleblowers will not be retaliated against. For employees to have faith in the process, it is equally important to take swift and concrete action against violators. This also shows how serious the company is about integrity.
The financial services industry is concerned with consumer finances and therefore it is important that it take the lead in setting the highest ethical standards.
