Raise Your Hand if You Are an Ethical Financial Planner

Written by: Cagla Yildirim | Assistant Professor, College of Business , Department of Finance New Mexico State University

On Feb. 6 at 4:17 am, the first earthquake struck Turkey with a magnitude of 7.8, and another one hit the region after nine hours with 7.5 on the Richter scale. Two weeks after the first wave of earthquakes, on Feb. 20, a 6.3 magnitude earthquake rocked my hometown, Samandag-Hatay. These earthquakes have become the worst natural disaster of the century. As of today, more than 47,000 people died due to the earthquakes. The death toll has been multiplying because contractors lack respect for building codes. Unethical practices of building contractors and reluctant local and state officials who allowed the sub-standard constructions to advance have been multiplying the devastation. So, here I am to remind you about ethics in our profession.

Every semester, on the first day of the class, while reviewing the Academic Dishonesty and Misconduct policy, I share the following note with my students: "I am not educating the next generation of Bernie Madoff. Remember, he cheated on his clients and their money. Do you ever want to be cheated on or your money? So, please do not cheat in my classes." – I try to scare them and make them feel the shame of cheating and hope for the best. -- Then, we discuss the discussion board assignments based on Daniel's Ethics Initiative Principles1 : Integrity, Trust, Accountability, Transparency, Fairness, Respect, Rule of Law, and Viability. (Do they sound familiar?) By doing so, they pay attention to the assignments and start being ethical, hoping for the best again. So, as an academician, I seize the moment to create a more ethical environment for the next generation of financial advisers.

So, why not do this within the Financial Planning Association (FPA) NexGen, I asked myself. We all heard about Bernie Madoff, Enron, Lehman Brothers, Worldcom, and unfortunately, the list can continue. We would not want to be associated with those mentioned above because we are all ethical financial advisors, right? So, please raise your hand if you are an ethical financial advisor.

But, how do you define being ethical? If you are a Certified Financial Planner (CFP ®), your definition would remark the Code of Ethics and Standards of Conduct2. A Certified Public Accountant (CPA) would reflect on the Code of Professional Conduct3. In the worst-case scenario, you would refer to the Financial Industry Regulatory Authority's (FINRA) definition4. Then you may add the information you gathered from the continuing education you received last month. As a CFP® professional, remember you must complete two hours of CFP® Board approved Ethics Continuing Education each two-year reporting period. On the other hand, on average, a CPA professional is required to have four hours of state-approved Continuing Professional Education every two years, right?

FPA has ethics policies, too: "General Policies and Procedures5."

"General Policies 1. FPA members are encouraged to observe high standards of business and personal ethics in the conduct of their duties and responsibilities, which includes complying with all applicable laws, standards, and regulations."

Your license regulation, requirements, and code of conduct you follow meet the current standards on paper and remember they are enforced. Indeed, the use of a code of ethics and enforcement of regulation influence ethical decision-making. However, is it enough? To me, not. Moreover, it is not enough for consumers of financial services. Cull and Bowyer (2017)6 found that clients had confidence in financial planners' technical skills but were less impressed with their ethical skills. The financial planning association needs ethical professionals. The FPA members need to embrace the role of ethics in financial advice by heart, not because some organization mandates it. While serving our clients and the community we live in, we, the members of the FPA, must be people of high moral character and act virtuously. Allow me to remind you that people of high moral character decisions are based on ethical guidelines/frameworks. By following a framework or a guideline, we, the financial planners, can enhance our ability to take the best care of our clients.

That said, how do you run your practice? Do you have your own ethical framework? According to Ciocchetti (2018), the most noticeable ethical frameworks fall into five categories: (1) the utilitarian approach, (2) the rights approach, (3) the fairness/justice approach, (3) the common good approach, and (5) the virtue approach. Let me encourage you to build your personal ethical guideline. If you are unsure where to start, you can learn about the categories mentioned earlier and combine them with FPA Oregon & S.W. Washington Chapter's guidelines7.

We learn how to lie, cheat, gossip, and treat people with respect or be dependable from our culture (Inspire Integrity, Ciocchetti 20188). Our brain analyzes others' actions and decides what is right and wrong. So, like many traits, we learn how to be ethical from each other. Our beliefs and our values shape our ethical behaviors. By correctly conducting their unique code of ethics, each financial planner can be a role model and perhaps encourage others to be better financial planners. As the FPA NexGen, we can create an ethical and respectful culture. Ethical and respectful culture will happen when every member does the right thing when they face an ethical dilemma.

Ethical contractors could build better buildings, and better buildings could save lives in earthquakes. Ethical financial planners could have their clients' best interests at heart, create better financial plans, provide fair, professional services, and help society at large.

Related: Understanding the 5 Money Personalities

6 Cull, M., & Bowyer, D. (2017). Ethics in financial planning: Myth, fact or rhetoric paradox?. e-Journal of Social & Behavioural Research in Business, 8(2).