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5 Key Ethical Guidelines for Best Practice in Financial Services

Posted on September 21, 2016 11:00 pm;

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By John Alexander Adam

It should be stated from the outset that while financial services as a wider industry get a bad rap, there is nothing intrinsically unethical about it as a sector. An external observer subject to regular headlines denouncing the latest scandal involving bankers, traders and other financial services professionals bending, or outright breaking, the rules in the pursuit of financial gain might, however, be under a different impression. On the one hand, the huge sums of money swirling around financial markets, the competitive element to who makes money and who doesn’t and intrinsic human greed mean that financial services professionals and companies are under more pressure than most to make ethical choices. On the other, financial services are a vital component to a functioning modern economy and are not in any shape or form inherently ‘unethical’. In fact, financial services’ intrinsic role is that of the protector of wealth and the smooth functioning of the global economy.

As such, it is even more important than in other industries that financial services are conducted according to a strong code of ethics and adhere to a moral compass that, in some cases, can go even beyond legal and regulatory frameworks governing how their work is done. So, what does an ethical financial services industry look like? If the culture of financial services professionals and the companies and institutions they work for follow these 5 principles unerringly, we will all live in a better world that would provide greater wealth and opportunity for everyone:

  1. Profit, but Not at Any Cost

A modern, capitalist economy has at its very foundation the principle of profit. Without a surplus, or profit, the economy doesn’t work. As such, financial services professionals are obliged to pursue a profit as the result of their activities. However, a modern economy only works if that profit is earned within a framework of rules and regulations that apply and are adhered to by everyone. Financial services are obliged to pursue profit maximization within the applicable framework and not by seeking an advantage by conducting activities that could be considered outside of that framework. Like sprinters competing in the 100 meters, the conditions should be the same for all competitors and the race conducted in an ‘honorable’ fashion.

  1. The Client’s Interests First

Financial Services is a wide sector and the ‘client’ may take many shapes and forms. At the highest level, in the case of a country’s central bank, the ‘client’ would be at one step removed the ‘Government’, and ultimately the population of the country.  At another level further down the ladder, the ‘client’ would be the investors in a fund or the private investor whose money a CFA® charterholder manages. Whoever the ‘client’ might be, an ethical approach to Financial Services will always put the client’s interests first. A doctor is paid but receives that payment on the understanding that their primary responsibility is to look after the health of their patients, not their own financial wellbeing. A doctor whose work routinely meant that the health of their patients suffered, would not receive their salary for long. In the same way, Financial Services should see their own income as reward for improving the financial health of their clients. There is nothing wrong with a fund or its manager making money, but their profit should not come at the expense of their clients. A truly ethical Financial Services industry would not see a small profit eaten up by fees, leaving the client with far less gain, or even a loss, while the financial services professionals and company supposedly working for that client make a tidy profit.

  1. A Commitment to Excellence

An ethical approach to financial services would see professionals and the organizations that they represent constantly striving to do the best job they possibly can under the circumstances. This means avoiding a mentality of doing ‘enough’, and stopping there. Commitment to both excellent results and technical accuracy in each step of the processes leading to that result is required.

  1. Ethics Prioritized Over Client Instruction

Of course, unethical behavior in Financial Services can also be provoked by clients themselves. Whether it be through strong encouragement to help them minimize tax within the gray areas of international tax law, or any other activity that could be interpreted as giving them an unfair advantage, it is far from uncommon for financial services professionals to be put under pressure by their clients to conduct activities they may not consider ethical. Financial Services run ethically will prioritize ethical conduct even when by doing so they may decline to undertake activities expressly requested by the client, even at the risk of losing that client’s business.

  1. Legal is Not Always Ethical

While legal and regulatory frameworks are, in theory, in place to govern ethical practice in Financial Services, there may be many instances where a particular course of action may be considered unethical despite not directly contravening laws or regulations. The legal framework governing Financial Services is not perfect and finding loopholes or other means to circumvent it is common. In fact, many areas of Financial Services specialize in doing just that. However, ethical Financial Services means choosing not to act in a certain way, or perform certain activities, despite the fact that doing so may not technically mean breaking any laws. Choosing not to exploit technicalities that may mean an activity is legal because it is considered unethical is the mark of a truly ethical approach.

If you would like to improve your understanding of business and finance, why not take a qualification such as the CFA® Program. Morgan International offers a number of different professional finance, investment and accounting qualification programs at locations across the Middle East.


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