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Are ethics always black and white, or is there room for gray?

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John Wayne once said, “If everything isn’t black and white, I say, ‘Why the hell not?’”

If only it were that easy.

One of the biggest lessons to come from the Clinton-Lewinsky scandal wasn’t the legality of what happened, but that a sitting president could be so lacking in judgment as to allow it to happen in the first place. Even supporters were disappointed that he all but gave his political enemies the firepower they needed to derail whatever agenda he was hoping to advance. And so it is with all ethical violations; while not always illegal, the resulting fallout is often far worse.

Consider more recent headlines; DEA agents accepting X-rated “gifts” from the very drug cartels they’re tasked with taking down. Or Sen. Robert Menendez of New Jersey pleading not guilty to corruption charges for allegedly taking $1 million in gifts and campaign contributions from a wealthy Florida optometrist in exchange for political favors. Prosecutors allege he gave Menendez vacations, airline travel and tens of thousands of dollars in contributions to a legal defense fund. In return, the optometrist sought Menendez’s support on the visa applications of several of his girlfriends, according to NBC News.

While not always this extreme, ethical dilemmas are all around, and advisors are far from exempt. That includes gifts from product providers and third-party vendors. In any conversation on the topic, people will argue there are always gray areas when it comes to managing conflicts of interest and what should or should not be disclosed.

Sure, there are degrees of consideration when you accept something from a prospective partner company. Have you ever hesitated to pick up that cool, gravity-defying pen at a mutual fund provider’s booth at a conference? One plastic, “Made in China” promotional item does not a corrupt advisor make. However, you’re more likely to find yourself listening to the pitch, and a conference tchotchke is only one end of the spectrum.

The other may be tickets to a sporting event. Or those two-day conferences that are part product education, part fly-fishing extravaganza. You converse with the company representative and connect on a more personal level as you float down the river. No strings attached, right? Wrong, even if it’s simply the tinge of obligation, or guilt, that accompanies your trip.   

It’s not uncommon to park assets with a particular custodian and be provided free portfolio rebalancing software. It might be a helpful tool for the workplace, but does it in any way make you beholden to the giver?

What about complimentary registration to certain industry conferences? A friend used to run marketing programs for a major theme park. He revealed their discrete, yet liberal, policy of comping admission in certain instances, the theory being it costs nothing to let someone through the gate. The park visitor would more than make up for it with the purchase of food, merchandise, etc. After all, they got something for nothing and are therefore more inclined to spend that “saved” money. The concept applies to Mickey Mouse as well as mutual funds.

One Midwest financial firm employs a strict, albeit extreme, policy of prohibiting wholesaler visits to their office. The fact that they’re constantly explaining the policy to those trying to get in the door means they’re probably in the minority. Yet they hold strong, and feel that they’ve eliminated what could be a major perception of impropriety. To stay current on products and trends, they do their own research and have a defined criteria and selection process that forgoes proprietary sales information.

We get it; it’s a relationship business, and that includes vendors and third-party product providers. The question is, how far do you let it influence you?

It’s a dilemma most advisors feel they can confidently manage. What they too often fail to realize it that humans, by nature, are extremely adept at self-delusion and moral justification. Think long and hard enough and a rationalization will eventually be reached, but if the gift or favor is not disclosed on the ADV or in some other way to regulators, how ethical is it, really?

There is no magic formula for finding the right (read ethical) decision. It instead becomes a series of questions to ponder as each situation presents itself. If only the Duke were still around to help.


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