Sunday 3rd August, 2006


Unethical behaviour must be addressed

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Dale Irvin, a famous American comedian, once said that a saint is someone who, upon death, gets a heavenly condo, a full saint’s pension and a day named in his honour. I imagine that to reap those benefits, a saint must be extremely honest, humble, and trustworthy—all moral values.

And since so many of us fail on the first item: that of honesty, our days may well remain named Monday to Friday, plus weekends.

You see, the problem with honesty is the law. This is so because honesty is an item of ethics, and while the law is a codification of ethical principles, man-made law, is still a long way removed from what we desire in terms of redress for unethical behaviour.

This means that redress for unethical behaviour is not widely available under the law. So, even though financial planners have to do courses in ethics in order to get certain professional designations, there is very little in law to remedy breeches.

Ethics is really a branch of philosophy concerned with moral behaviour. Today’s problems have arisen mainly because business has been so focused on competition that the ideals of business co-operation have fallen by the wayside, and morality is a tool of convenience.

There are three grievances that clients relate from time to time, which fall under unethical behaviour. They are classified in financial planning as churning, twisting and replacement. They are all examples of unethical advice and conduct.

Replacement is the act of terminating an insurance policy, and replacing it with a new one. In some cases, this may be of benefit to the client. However, in the majority of cases, it is of greater benefit to the salesperson.

How? Through commissions and new sales production achievements, from which the salesperson reaps greater rewards. Old policies pay minuscule commissions, new policies pay big commissions. Old policies don’t qualify the sales persons for conventions and trips abroad, new policies do!

Sometimes a salesperson is able to convince a client to cash in an old policy, and to substitute a new policy that seemingly gives more dollars of coverage than the old policy. What the salesperson may not say to the client, however, is that the new policy may never have cash values to take out later.

In the US, there are definitive laws that punish such actions. Locally, however, such laws are lacking.

In the interest of the client: cash value withdrawals should only occur when there is a need to fund education, emergencies, or if structured needs were factored into equation at the onset, to facilitate expenditure/investment.

Twisting is the act of inducing a policyholder to abandon an existing policy with one company and to buy a new one from a different company or even a bank. Salespeople are able to do this either from bad-talking another institution or misrepresenting the facts and financial status of first company.

Some unscrupulous sales persons wait for a downturn in the stock market and an announcement that certain stock prices have taken a plunge, to rush out with advice to stop policies issued by that company. This is wrong!

Life policies and annuities are contracts that have to be honoured by the provider. Hence the benefits clients bought are still as good as gold, and there is no need to cancel the contracts. Non-guaranteed dividends may not

be paid, but the core contract is still of good value.

I will have to continue next week, but now, I know why Santa Claus never got a day named after him, and we have to call it Christmas!

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