Ethics and compliance are complementary forces within the best financial services firms.

Attaining success in the financial services industry depends on performing at your best in every facet of your business. Sadly, too many advisors offer less than their best, perhaps succumbing to America’s pleasure- and consumption-driven culture.

The temptation to settle also is evident in how advisors handle ethics and compliance issues on the job. I often observe individuals who are highly principled (i.e., ethical) but drop the ball when it comes to following the rules (compliance-focused). Others understand the importance of rules, but don’t apply ethical principles when compliance mandates don’t exist.

In short, to become a top-tier professional, you must not only be highly ethical, but also highly compliant in terms of adhering to the law. At first blush, these two elements appear to be at odds. But as the Chinese have taught us, opposing forces are usually complementary — part of a unified duality called “yin and yang.” As that iconic black-and-white symbol suggests, ethics and compliance are both essential to your success; doing one without the other is a guarantee of mediocrity — or worse.

So here’s the practical application. If your heart is in the right place, but you shrug off rules, you leave yourself open to external attack (from customers, competitors and regulators). But if you prioritize compliance over ethics, you leave yourself open to attacks from within (from your own greed, envy, etc.). Finding the right balance between these two elements is difficult, but essential.

The following two examples should make this more clear.

An advisor served an older couple for 15 years, and he often signed forms on their behalf in order to simplify their lives. This continued without incident until one day, he saw a request to transfer funds to an outside institution. Thinking it a mistake, he signed and submitted a form on their behalf to cancel the request. However, the couple had initiated a relationship with another advisor and actually wanted the money to buy a product from that agent. Nonplussed, the couple filed a regulator complaint against the advisor, resulting in a $12,000 fine and six-month work suspension. Lesson: The advisor’s action came from a place of kindness — he was trying to protect his clients. But he broke an important compliance rule: Never initiate an action for a client without the person’s written permission.

The second case involves an advisor who did in-depth fact-finding around a couple’s retirement-income needs. After completing his analysis, he suggested they buy a high-commission product even though less expensive options were available. Operating under a suitability standard, the advisor believed he was justified in recommending the more expensive contract. However, from an ethical perspective, he put his own self-interest above the good of his client. Lesson: The advisor’s bias toward compliance led him to violate a key ethical precept, opening the door to further ethical lapses in the future.

So how should you integrate ethics AND compliance in your own business? Consider these pointers:

  1. At every juncture, ask two questions: “Is it legal?” and “Is it right?” These are two distinct questions, and the answer to one does not necessarily apply to the other.
  2. View compliant actions as the minimally acceptable standard and ethical actions as the “value-added” best practice. Highly successful advisors always go the extra mile to do what’s right for their clients.
  3. Finally, always remember that being ethical doesn’t prevent blowback when you break the rules. Advisors who combine an ethical yin with a compliance yang will always have the most sustainable and rewarding careers in this industry. Will that be you? 

See also:

Ethical sales practices are good for more than your conscience

Why best practices put ethics first

E&O no: How to ease the pain of client disputes

 

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