Everywhere you look today, people are being squeezed economically. Gas is approaching $5.00 per gallon (and may already be there by the time you read this). The cost for food is inflating rapidly. By the time next winter rolls around, people may have to choose between eating or staying warm.

As costs mount, traditional sources of cash have dried up. Home values have plummeted, so there’s less home equity to draw on. Personal and business loans are harder to get. And as the economy has weakened, jobs are tougher to find.

These trends hit Americans squarely in their financial solar plexus. As their cash flow constricts, they may consider risky financial options. They may push for speculative investments in order to generate emergency cash. Cancel their life insurance for the cash value, leaving their children unprotected should they die. Pull money out of their annuities even though it triggers a taxable event, surrender penalty, or both.

Competing advisors may convince your clients they have the answer to all their problems and convince them to defect. Now your cash flow is hit right where it hurts.

Of course clients have the right to make their own decisions. But as a financial professional, you have an ethical duty to encourage reasonable decisions, not those that produce financial ruin in the long term. But what happens when your definition of “reasonable” conflicts with the client’s? That’s the ethical dilemma.

Do you educate the client about the downside of their decision? Absolutely. But what if the client continues to resist? Do you then offer a less-damaging alternative? Of course. But what if the client still disagrees? Do you keep advising against the decision? Do you stand your ground even to the point of losing the business?

This last scenario is tricky. You might tell yourself, “My client is going to do this anyway. So why lose the business? I’ll just go along to get along. Besides, it’s just not a good time to lose a client.” The minute you have this conversation with yourself, you’re on a slippery slope ethically. If you proceed on this course, you may well compromise your ethical values … and ultimately harm your reputation.

The alternative? Recognize ethical dilemmas and manage them very carefully by staying SMART. Here’s how:

  • Study your options carefully.
  • Make a mental note of everyone affected by each option.
  • Assess who benefits or suffers from each option.
  • Reflect on whether you can live with yourself after making each choice.
  • Total up all the factors and make a final (smart) decision.

The bottom line? In tough economic times, always counsel your clients to do what’s right — both financially and ethically. But remember if you compromise your ethical values, what kind of advisor will you be when the economy finally turns the corner?