Studies show that the key to ethical behavior is to keep promoting, discussing, and practicing ethical principles. Here, we present eight important points on ethics:
- Implementing high ethical standards in the investment industry is not only the right thing to do, but also the best way to build a sustainable business.
- Ethically minded associates help create firm cultures more likely to do the right thing for clients, their fellow associates, and other stakeholders.
- Firms should develop ethical guidelines that are based on principles, not rules, since the former offer better guidance for employees across the organization. It is important to keep promoting, discussing, and practicing ethical principles.
- If we spend time thinking about the principles over the rules, remembering to focus on the beneficial outcomes rather than what happen to be industry best practices at the time, we will get it right most of the time. Best practices change and the judgment of the marketplace can be retroactive and harsh.
- From my experience, the acid test for ethical behavior towards a client is that the fee for a service should reasonably compensate the firm for every aspect of doing the best job it can for the client. The firm should receive no other monetary benefit from the client relationship than the fee.
- Direct contact with clients results in a real empathy that encourages behavior for the sole benefit of the client even at the expense of the firm. I have witnessed this empathy over the years and felt it strongly in my own client relationships.
- Certainly people will make mistakes, but hopefully the mistakes are ones of execution rather than amoral intent.
- The bottom line for ethical behavior requires that every other consideration or action in the relationship be for the best interests of the client, and that no other advantage for the firm or any associate be sought at the client’s disadvantage. Remember the primary “commandment” of being a fiduciary: To act prudently only in the best interests of the client.
A final word from Ron: “The best ethics primer for young professionals (and old ones too!) that I have ever read is the CFA Institute’s Ethical Mindfulness: A Guide for New Financial Services Professionals by Donald Langevoort. It is a brief, practical, and interesting read; it is very relevant to our industry with great examples on how gray-area ethical issues can arise and how to handle them.”
In addition to being our Chairman and CEO, Ron serves as Chairman of the CFA Institute Asset Manager Code of Professional Conduct Advisory Committee. This article excerpted from Ron’s white paper, “Ethics 101 for Investment Professionals.”
- Keeping client interests paramount
- Exercising independent thought
- Demanding quality and integrity in everything we do
- Honoring every commitment
- Pursuing innovation that matters
- Leading through practical research and education
- Collaborating and showing collegial respect
- Encouraging each associate’s success
If there is any question at all about doing something, don’t do it. – Ed Callan