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Integrity: An Old-Fashioned Virtue?

By Alec Riddle, CFP

Every week we read another headline about corruption, fraud, tax evasion, manipulated tenders and the like and unfortunately it’s invariably all happening at leadership level. So the question we have to ask ourselves is, are the Leaders of today corrupt and lacking in integrity?

Robert Hoyk and Paul Hersey say that the disconcerting answer is that these leaders are no different than any of us. “With the advent of Social Psychology, which is the behaviour of individuals in groups, we have learned that the influence of the situation often overpowers the influence of personality.

Even if we have good ethical values to begin with, given certain situational pressures, a large majority of us can become unethical.”

Definition of Integrity:

Steadfast adherence to a strict moral or ethical code. Moral soundness. Honesty.  Freedom from corrupting influence or motive—used especially with reference to the fulfilment of contracts.  Uprightness.  The quality or condition of being whole or undivided.

Can you picture a politician fitting that mold? Rarely is a politician viewed as having integrity. More recently, how many Wall Street bankers or executives are seen to have integrity after 2008? However, it is not just individuals who are perceived in that light, it is also certain industries or professions that lack integrity.

The problem is that if integrity is compromised, it leads to a lack of trust. When trust is lost, people lose faith. When people lose faith in the banking system or financial services, for example, they do not save and this impacts the economies of those countries.

Financial Planning Application

So, let’s bring these thoughts back to financial planning. In years gone by, it appears to me that the product providers and the brokers/advisers ‘sold’ certain products that definitely benefitted the companies they were representing, as well as themselves, but did it benefit their clients, or was it a pure coincidence if it did?

As CFP professionals we have an enormous amount of work to do if we are to restore credibility in our profession. One of the biggest obstacles we have to overcome is the legacy created by the past, which still crops up when clients mature some of those ‘dreaded’ commission-driven products of yesteryear, only to find out they have been horribly short-changed.

First and foremost, we have to put the client’s interests first and we have to act ethically in all of our dealings with our clients, as this would start to restore faith and trust. In my opinion, commissions compromise ethics and I will illustrate by way of example (bearing in mind that the investment options below have been available for more than a decade now).

On the one hand, you have modern day investment products that are extremely flexible and cost effective for the client and on the other, you have older generation products that are very inflexible and costly, so which should you or do you recommend?

A professional would, in my opinion, recommend the former and be paid a small fee of each monthly contribution over the next 25 years to the client’s retirement age. The client gets improved investment allocation from month one and can change the contract at any time, without penalty.

The second instance is where commission could compromise integrity and ethics. Here the client is ‘sold’ an old generation product, whereby the adviser earns 25 years of commission upfront. This is surely not in the client’s best interests, as it restricts flexibility, is much more costly and if the client’s circumstances change (eg. Retrenchment) and they have to adjust the contract, they incur a penalty.

So, while the adviser in example two did not break the law, he simply subscribed to ‘situational’ ethics, whereby ethics are changed to suit the circumstances. He bent the rules to suit himself and if the adviser is new in the industry or not financially secure, there is every likelihood he will be compromised and elect to take $30,000 commission upfront, rather than receive $100 per month over the next 300 months, as an example. I believe that the authorities need to ensure that this type of temptation is eradicated from our profession in South Africa, as it compromises ethics and integrity and ultimately breaches trust.

We need strong leaders in our profession, meaning financial planners who have a strong set of values, who recognise the importance of good ethics and will always put the client first. It is often said it is not what you say, but what you do, so a strong leader must live out their values and ethical behaviour each and every day, thereby establishing trust amongst their peers, work colleagues and most importantly, their clients.

Dr Duane C Tway calls trust a construct because it is “constructed” of these three components: “the capacity for trusting, the perception of competence and the perception of intentions.”

One of the best ways for us to establish trust is to facilitate the capacity for trusting which we do in our everyday engagements; to be competent in our planning methodology and to walk the talk all of the time and not just when it suits us.

Let me illustrate how I managed to win the trust of one of my toughest and largest clients. In 2005, I charged my very first Planning fee to develop a Financial Plan for a client due to retire two years later. I applied myself thoroughly to the task at hand and when I handed the plan over, the client was very complimentary, so much so I thought I would get to implement the client’s retirement funds in due course. You can imagine the shock when he opted, for whatever reason, to invest elsewhere. Where had I done wrong? It was devastating to say the least.

However, I felt I could learn from this client so I invited him onto my Client Advisory Panel. I also kept communicating with him on a regular basis and we had numerous coffee meetings over the course of the next 12 months. One year later, I phoned the client to suggest we review his Plan and he said you don’t have my Plan. My response was that I don’t have your investment, but I do have the Plan. I stated we should see if I could add any value by analysing and evaluating the initial assumptions and objectives.

At the meeting, he expressed his amazement that I was so willing to give up my time and that I had persevered with him after he had invested elsewhere. In the next breath he said that he felt he had made a mistake; that the company he had invested with had not communicated with him regularly or bothered to set up a review meeting and that he would like to look into transferring his assets to our company.

This illustrates that trust is often built over time and that we should never underestimate the benefits of regular communication, as well as the importance of regular review meetings. Trust includes honesty, integrity and promise keeping.

“Leadership is a combination of strategy and character. If you must be without one, be without strategy.” – H. Norman Schwarzkopf

General Schwarzkopf’s description provides us with a key insight into leadership: having character. However, character does not exist in a vacuum. Character is rooted in ethical values and these values do not shift in reaction to shifting circumstances. Michael Josephson, a renowned ethicist, states that “character” is based on six core ethical values: trustworthiness, respect, responsibility, fairness, caring and citizenship. If you approach all of your decisions through the lens of these six core ethical values, you will always make the right decision.

The above core values are not too dissimilar to the code of ethics we, as Certified Financial Planners, subscribe to: Integrity, fairness, objectivity, competence and diligence, confidentiality and professionalism.

Let us all strive to have strength of character and I encourage all of us to have integrity, to treat clients with respect, to take responsibility for our actions/recommendations, to ensure that it is always fair/reasonable and to take great care in our analysis and evaluation. If we are able to do this steadfastly and resolutely, without compromise, then we will, in the future, awaken to a well and truly respected profession.

Dale Carnegie’s definition of leadership: “A leader is a person who takes you where you would not go on your own.” Implicit in this definition is an ethical leader (or planner) who you trust. Without trust you would not follow them where you would not go on your own.

(Some information and quotes are from Leadership Ethics-Why it matters by Michael Koscec)



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