Ethical Values Help Financial Professionals Weather Economic Uncertainty, Says the National Ethics Bureau.
Membership organization of background-checked financial professionals urges insurance agents, financial planners, and real estate agents to take NEB Ethics Pledge. |
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SAN DIEGO, CA, January 28, 2008—With the current economic uncertainty, financial professionals should recommit themselves to high standards of ethics and integrity. According to the National Ethics Bureau, a membership organization of background-checked financial professionals, this requires upholding the following key principles of the NEB Ethics Pledge.
Key Principle #1. Always protect and promote your client’s best interests, even to your own financial detriment.
“This can be difficult when fewer clients are buying your services,” says Steven R. McCarty, National Ethics Bureau Chairman. “To boost your revenue, financial professionals may be tempted to recommend products or services that pay a higher commission or fee than other options do. Although this may provide a revenue boost short term, it likely will weaken client trust and lead to potential problems when the economy improves.”
Key Principle #2. Be totally honest in explaining your education and business background, including your licenses and designations.
Advisors in a revenue crunch may be tempted to oversell their credentials in order to win the trust and business of prospective clients. This may involve claiming they graduated from college when they didn't’t or claiming a professional designation they didn't’t earn or even claiming to be licensed to sell a certain product when they really aren't’t. “Such strategies almost always backfire,” says NEB President Jeffrey S. Kopitz. “By building client relationships on a foundation of deceit, advisors are setting themselves up for trouble later.”
Key Principle #3. Always disclose the important features of your products or services, including potential risks that may affect future performance or value.
In a downturn, prospects and clients typically become more risk averse as fear and hysteria sweep the marketplace. Financial professionals should help their clients make sure their fears are reasonable. “Depending on a client’s investment horizon, it may be foolish to eliminate risk altogether,” advises NEB’s McCarty. “Advisors must acknowledge their clients’ fears, but also make sure clients don’t deal themselves out of future rebound opportunities.”
Key Principle #4. Be totally truthful about the realistic returns or future values a prospect or client can expect to receive.
As interest rates, investment product returns, and real estate prices fall during an economic slump, unethical professionals may “gild the lily” by exaggerating the benefits of working with them. However, overselling is a recipe for disaster when it comes to building strong and profitable long-term client relationships. “All it takes is one lie to lose a client’s trust,” says NEB’s Kopitz.
Key Principle #5. Thoroughly probe a client’s current and future needs in order to make suitable recommendations.
During a downturn, when client funds may be tight, it’s more important than ever to deploy those funds carefully. This involves having a full and frank discussion of client needs in order to make suitable product or service recommendations.
Key Principle #6. Respect client confidentiality even under third-party pressure to disclose information.
When times are tough, clients and their families typically experience more strain as breadwinners get laid off, investment portfolios shrink, and future economic prospects seem bleak. These strains can produce serious medical problems such as clinical depression or spark risky personal behaviors such as substance abuse or gambling. “Advisors who are privy to these matters should respect their clients’ right to confidentiality,” advises NEB’s McCarty. “Never, ever divulge what you learn about a client to your friends, family, or acquaintances.”
Key Principle #7. Always use advertising and presentation materials that are completely accurate and legally compliant.
Financial professionals may be tempted to short circuit normal compliance by using unapproved sales materials. “This is not only a risky revenue-generating strategy,” says Kopitz. “it’s illegal. If you’re tempted to cut corners, just don’t do it.”
Key Principle #8. Always provide clients with copies of required documents relating to the products they have purchased.
Since clients may be stressed and fearful about the economy, which may lead to complaints or lawsuits, be extra diligent about disclosing required information to clients. Also, document reasons for buying in a written memo and secure the client’s signature on this document and make it part of the client’s permanent file.
Key Principle #9. Always refer your clients to an outside professional for expertise that is beyond your training and current license.
Even though you need the revenue, don’t be tempted to stray outside your knowledge base or your legal authority in order to close a sale. “Doing that may be beneficial in the short run, but it can lead to regulatory sanctions or worse in the long run,” warns NEB’s McCarty.
Key Principle #10. Stay up to date on all industry practices, including emerging trends, new government regulations, and the latest product innovations.
According to NEB, the temptation is to hunker down in order to weather today’s storm rather than position oneself for sunny days ahead. “It may not be easy,” says NEB’s Kopitz, “but try to ramp up your professional learning during a down period. This will not only make you a better advisor to your clients today, but it will also prepare you to capitalize on tomorrow’s opportunities.”
In short, staying true to your ethical values is more important than ever during a down economy. If advisors abandon what they know to be right just to achieve a short-term advantage, they will lose their moral authority to succeed when conditions improve. “Staying true to your ethical values can be a source of strength when times are tough,” says NEB’s McCarty. “For this reason, we encourage financial professionals to do the right thing even when it may hurt financially to do so.”
To take the NEB Ethics Pledge, go here.
About National Ethics Bureau:
The National Ethics Bureau™ (NEB) is a membership organization of financial professionals who have successfully passed a comprehensive series of background checks and have agreed to maintain NEB membership standards. All members are admitted into NEB’s online national registry, where consumers can view a member’s approval status and professional profile.
NEB also advocates for business ethics and consumer protection through its trade-magazine columns, conference presentations, consumer guides, monthly Ethics Edge newsletter, and web site: www.ethicscheck.com.
NEB is not a professional designation, nor does it sell or endorse any financial products.
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