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Ethics: necessary, nuanced, and hard to teach well

By Alexandra Baig


Ethics is a pillar of the Certified Financial Planner™ designation. An unethical fiduciary is an oxymoron. Ethics courses abound and designations beyond the CFP® require that their holders complete annual continuing education around ethics. Financial service companies of all stripes require yearly training designed to help their employees discover unethical practices of clients or prospects, from money laundering to elder abuse. That said, book learning is one thing. Putting it into practice in our practices is quite another. I reached out to a few of my fellow planners to hear their experiences with issues around ethics.

What are the most important ethical considerations that the financial planning field faces today? 

Andrea Clark, founder of The Table Financial Planning, led with: “Our society is more diverse than ever, which means we must more carefully consider our own biases with each client. This may be especially true within a highly defined client niche, as we overestimate how well we understand our client.”

As a financial planner who works almost exclusively with people with disabilities and their families, I can relate to this observation. People within the disability community and their families and supporters have very diverse views. For example, some people want to do everything they can to avoid relying on government benefits. Some cannot afford to do that and need to balance how much they want to work with the possibility that working too much will disqualify them from benefits. Some people are dead set against their family members moving into a larger congregate setting that is not fully integrated into the community. Others see such a setting as providing the necessary supports and safety. I need to listen first to what the clients want to do and why.

Greg Knight, the founder of Engage Advising, answered from a different, but very necessary perspective: “Probably, issues around billing and fee collection [are the most important]—advisors getting too greedy and crossing the line and collecting more than they should.”

This, too, rings familiar as a thorny issue. Some clients can easily pay my fees. Some truly cannot, even if they need my help. What is a reasonable way to implement a sliding fee? How many clients can each of us take on a pro bono basis, and how do we determine which ones?

Jay Zigmont of Childfree Wealth offered a unique perspective based on his practice niche: people who choose a childfree lifestyle. Noting that his firm is headquartered in Mississippi, he said that he is concerned about maintaining his clients’ privacy in, as he called it, a “post-Roe” world. He said, “That means any discussion of reproductive rights or actions cannot be included in your documentation.”

What is an ethical issue that you have encountered in your own practice, and how have you handled it? 

Knight said, “Clients wanting me to serve as executor or trustee for their estate planning needs. I let them know that even though most jurisdictions do not necessarily have a prohibition on this arrangement, FINRA and other regulatory agencies frown on this practice. I let them know that it could potentially be a conflict of interest and that it is better for them to find another party.”

This has come up more than once for me, given the nature of my own practice. To date, I have not agreed to serve as an executor or trustee. However, for clients who have become friends, I sense the concern behind this question. They want to make sure that whoever is directing their family member’s special needs trust has the knowledge to do it properly.

Zigmont believes that he might face a situation where “helping someone to travel across state lines for a medical procedure (an abortion) could put you and the client at risk,” even though “In the past, it wouldn’t be odd to help a client with financial planning around a medical expense or travel.” He is working with legal experts to determine what his course of action might be in such a situation because “While some may say not to discuss issues like this with clients, it would be a great disservice to my clients.”

In my practice, there is an ethical question of how to proceed when the family, often the parents who are paying for my services, have a very different view for the desired adult life for their adult child with a disability than the child has for themself. This is particularly thorny if the parents have legal guardianship. Another issue that, I believe, rises to the level of an ethics question, comes up when the parents’ plan for the future security of their child with a disability must be carried out, after some point, by a sibling who may not want to or have the skills or the time and energy to take on those tasks.

What do you think of the ethics training that is available to financial planners?

Clark said, “Current training mostly relates to financial products. More ethics training is not going to ‘fix’ those who do not already practice good ethics. Fee-only planners go the extra mile to understand and be committed to ‘suitability vs. best interest’ choices. Maybe that is why the current training seems to be lacking.”

And indeed, Steven Sivak of Innovate Wealth vehemently echoed this sentiment: “Ethics training is a joke. You can make all the training mandatory; write all the policies and procedures you want … it is not going to stop an unethical person from being unethical. Every person ever arrested for a Ponzi scheme did ethics training, and I am sure they were also covered under a P&P [policies and procedures] manual. I believe the only thing you can do is align ethical behavior with incentives. As long as bad behavior is rewarded with titles and compensation, you’re going to have bad actors. Human nature does not change. This is also why I favor ‘bad actor’ rules being fierce. If you get caught ripping people off, you can no longer do anything in this business. If you cheat once, you are likely to cheat again, and it happens all the time.”

Knight feels the way to move forward is to make ethics training more “real world” because right now “it is pretty repetitive, uninspiring, boring, and mediocre. This is a shame because there are so many good cases out there to use as studies to make it more interesting and to reinforce what not to do. Also, the fact that it is only two hours each period reiterates that it is a check-the-box ‘to do’ item and not really valued by the industry (or CFP Board). This leads to the same stale ethics presentations and quoting of CFP Board standards, or FINRA regs, and no real ethics training. The sad thing is, ethics should be easy—it is doing the right thing, always!”

Clark also mentioned taking a different approach to the question of what ethics is. “Maybe we challenge ourselves to a ‘next level.’ We all know the importance of saving and investing, and as planners we can always find another great way for clients to accumulate more or protect the assets they already have. But should our ethics conversation center mostly on preservation and accumulation? Helping our clients ‘vote’ their values with their money should not be a conversation that ends at ESG investing. How do we influence clients in spending or decumulation? Mortgages, credit, debt, charitable giving, education—should ‘best interest’ and ethics apply to some of these options? For instance, what if we encourage someone on an AUM payment model to continue making monthly contributions to a brokerage account versus paying off high interest rate credit card debt or student loans or refinancing a mortgage? Ethics need to be applied to many of these topics as well.”

Finally, I asked for some examples from advisors’ own practices where clients came to their practices with situations that had not been handled ethically in the past.

Clark cited two:

I had a new client come to me loaded up with ESG investment funds without knowing what they are. When I explained, I found it to be something in which the client had never expressed interest. The advisor had inserted their own values and business practice without educating the consumer. The client had no tangible premium with the ESG funds and would have been financially better off with lower-cost index funds that aligned with their thoughts on investing.

I have also counseled many young, healthy, single clients with whole life policies in place. Most have a scare story to go along with buying the policy, and very often they have no disability insurance to protect their greater financial risk. They are sometimes devoting those last available dollars to the policy instead of an employer’s retirement plan with matching money or an IRA or an emergency account.

I have definitely encountered the latter issue. In addition, I have encountered situations where clients had been sold a universal life policy that had “flexible” premiums, but the agent had not explained clearly to the client that they needed to pay a certain amount of premium to make sure the policy would stay in force as long as they needed it to. In some cases, by the time they got to me, the policy was about to implode, and the clients were aghast to hear how much additional premium they would need to put in to maintain the policy so that it could, as intended, fund a special needs trust.

What are the takeaways about ethics in our field of financial planning?

From these specific conversations, as well as those that I have had with colleagues and collaborators over the years, it’s clear to me that ethics are critical to our field, even though the current education and enforcement are inadequate. A few other takeaways:

  • Ethics go above and beyond just following the rules.
  • Ethics are practiced in a larger social context.
  • Each niche or focus of practice generates very particular ethical questions.
  • There are plenty of ways to improve ethics education, and many advisors would eagerly embrace stronger curriculums.

Alexandra Baig, MBA, CFP®, is the executive director of P.A.C.E., a post-secondary program for young adults with intellectual and developmental disabilities at National Louis University. Alexandra also maintains a private practice assisting people with disabilities and their families to manage Social Security, Medicaid, and Medicare benefits and to plan for a secure future. 

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