Sunday 10th July, 2005


No compromise on ethics

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There is an old branch of philosophy, which is called ethics. It is concerned with moral behaviour and standards. Its value is paramount in today’s marketplace. As Socrates is reported to have said: “We are discussing no small matter, but how we ought to live.”

Ethical conduct is a hallmark of professionalism in the financial services industry. It reflects the quality of work to which individuals put their signatures.

In fact, it is one of the four characteristics which define the professional. The other three are: a specialised knowledge of the industry, a threshold educational requirement, and a sense of altruism or unselfishness.

The financial planning professional is at first honest with himself/herself, and is then honest with all others. There can be no compromise, no hour, no day!

The ethical individual, responds promptly to complaints, gives honest feedback to all and does not subscribe to the art of “kiss up” so commonly employed by those who what to “get ahead” quickly.

The concept of ethics finds its template in basic assumptions that cover all relationship and all transactions within the socio-economic framework.

The problem is that there is little overlap between the law and ethics. This translates to little redress with regard to unethical conduct because the law does not really treat with most of the issues that relate to moral standards.

Clients therefore face a very real risk in placing their trust in individuals, who misrepresent themselves and their companies.

In the industry, there has been some effort at codification of a standard of conduct, but neither the Insurance Act of 1980, nor the new regulatory apparatus under the purview of the Central Bank, have correctly addressed major ethical issues facing the buying public.

While we have been assured that it is a work in progress, as yet there are no real remedies, unless clients are prepared to name persons, and appear in court.

Let me cite some specific types of unethical behaviour practised by financial advisors.

The most common one is rebating. Rebating and similar type offences refer to the practise of returning a portion of the premium or commissions back to the client, in return for the client doing business with that financial adviser. That is definitely illegal!

Clients are often unwilling to report this because they benefit from the transaction.

But economically, rebating is an indicator of poverty. If a sales agent makes five sales for the month, and returns his commissions to the five clients, how does he pay his bills, or feed himself and his family? The rule of thumb is: if he is defrauding, or breaking the law in any way, he will be susceptible to defraud/break the law in others ways.

So a word to the wise—if a sales person promises to return his commission or part of the premium, in exchange for the business, something in the equation is wrong- everybody will eventually lose!

Another common unethical behaviour is the practise of “bad talking” other agents, from the same company, or “bad talking” other companies. Unethical individuals make wild claims that they sit with “board” and they get special rates. They also blatantly and falsely claim that other agents have left the company, in an effort to steal existing business.

A second word to the wise—run those agents from your door!

A third ploy is that effort to get existing insurance policies cancelled, under the claim that the new one is better.

A word to the wise: Insurance is somewhat like wine, the older the policy, the more value it contains.

To be continued next week.

n Raziah Ahmed is a registered financial consultant.

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