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How to preserve your 'full faith and credit'

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As I write this column, the news is full of dire articles about the impending U.S. default on its loan obligations. The great debate over our budget has me musing about the meaning of the term “full faith and credit,” especially how it relates to the ethics of selling financial services today.

What it means
The term “full faith and credit” actually has a specific legal meaning. It refers to a specific clause in the U.S. Constitution that requires all states to recognize the legislative acts, public records and judicial decisions of the other states. It was hoped this would unify the country, yet give the states proper autonomy. Over time, though, “full faith and credit” has been used in many other contexts, including the notion that the U.S. unconditionally guarantees its financial obligations. Regardless of your political ideals, you have to wonder about the wisdom of doing anything that damages that faith. Because once a government loses public confidence in its financial integrity, it’s tremendously hard to rebuild trust.

In much the same way, financial advisors have their own “full faith and credit.” Your clients agree to do business with you because they believe you are competent, will provide suitable solutions and agree to be there for them when they need service, not just tomorrow or next week, but years or decades from now.

Yet anyone who reads the financial media knows that advisors sometimes act in ways that erode that faith.

Big lapses like soliciting for Ponzi or pyramid schemes, or little things like sloppy paperwork or failing to return phone calls. And everything in between, from twisting and churning, selling unsuitable products and misrepresenting product features, to not staying current with product trends and giving lackluster advice. With each ethical transgression, a client’s faith in an advisor’s integrity weakens. What started out being unimpeachable develops fissures over time, inevitably crumbling in disgrace.

So how do you maintain your practice’s “full faith and credit?” Here are some steps:

  • Do everything by the book. Make sure your marketing and administrative practices are locked down tight.
  • Do business with professionalism. Part of this depends on you knowing your stuff. The other part depends on you acting with unconditional integrity.
  • Exceed client expectations. Set–and reset–client expectations as needed.
  • Communicate, communicate and communicate with your clients. And when you’re done, communicate some more.

Never forget that it’s about them, not you. Whatever your license type, adopt the mindset of a true fiduciary.