Mon, May 20, 2024

The official Financial Regulation Journal of SAIFM

Doing the right thing

Richard Rattue, MD, Compli-Serve SA

Ethics are more important than ever, and it’s at times when temptation may be high (to do the wrong thing, for the sake of the pay-out) that we need to remember the real bottom line. Some opportunities are simply not worth the risk. Covid-19 has put extra pressure on financial services professionals given market losses and high volatility. In a world where it’s hard to see even the immediate future, it can be even harder to keep ethics top of mind, particularly in times of desperation. However, it’s at these times that an ethical approach is paramount.

The most recent Edelman Trust Barometer clearly points out that ethics are three times more important than competence. But you will of course, need some competence to ensure you don’t lose sight of your ethics. 

The tough economy makes for tough decisions

Financial advisers may be faced with clients wanting to take risks, or wanting to pull out of investments, given the economic climate. Whatever the example, they may want to go against the advice provided. Going with your client’s decision, against your own better judgement, is seldom ever a risk worth taking. The potential commission, which may seem appealing for now, could seriously count against you in the end.

From an ethical standpoint, if faced with this type of situation, you need to seriously re-evaluate if you are working within the Treating Customers Fairly (TCF) principles. Is it ethical, or fair to support your client making this decision? These questions are still valid, even with Covid-19 throwing so many normalities into disarray. Retaining customers is crucial in a tough economy but they should be customers that you can trust too.

It may take some tough love

In some cases, it may be better to walk away from a client, if they prove to be too risky to stand by. This is certainly a difficult decision, particularly in an uncertain economy. But it is much better to lose a client that could cost you more than they can make you.  As an adviser, you don’t have the final say in what your client actions, so a risky client is best avoided altogether.

Imagine your client’s investment doesn’t pay off and despite acknowledging your advice against making the investment, they lay a claim against you for their losses. Money is emotionally driven, and big losses can cause clients to act out. You can very quickly get caught up in a costly nightmare, worse than you could imagine. 

The Ombudsman won’t only look at the contract to assess liability. They will look at your ethics, taking TCF into account.  Your clients should trust that their fair treatment is central to your company culture, and in particular that you are honouring Outcome 4 – Suitable Advice. If your client wants to ignore your advice, you should have that clearly documented.  

For the record

In any advice transaction, you need to keep a record. Doing the right thing means consistently recording your activities, and these can also be the very same documents, or emails that could help prove you didn’t go along with your client taking bad advice.

Incorporating the TCF principles into your business will pay dividends and should give you the high ground in the event of a vexatious client complaint.

Doing the right thing, especially in a crisis like the coronavirus has brought about, is the ultimate test and time to show your true colours. But remember, when it comes to compliance, it is only black or white; there are no grey areas.

- Advertisement -spot_img

Latest Articles