Answers to some of the most frequently asked questions about the global economy.

In the past, all that was supposed to be done to prevent misbehavior and unethical practices in the financial industry was to establish regulations to help guide and encourage ethical behavior in the marketplace. However, regulation is no longer a guarantee of ethical behavior.

Billionaire Warren Buffett recognized the need to put measures in place to ensure this behavior is practiced on a daily basis with his executives. Buffett has told his managers that there is a difference between what is legal and what is ethical. “Let’s start with what’s legal, but always stick with what we’d feel comfortable getting on the front page of our local newspaper.”

“It is better to choose a good name than great riches, and favor is better than silver or gold.”
Proverbs 22:1 (esv)

Here are some questions with answers that I hope will be helpful and provide some guidance.

Questions and answers:

1. How does ethics affect the stockbroker on Wall Street?

has. cheat the customer

i. When a broker is dealing with a client, the client gets the impression that he is dealing with a professional. Giving in to bad practices that encourage laziness on the part of the broker is a sure way to make yourself vulnerable to unbecoming broker behavior. This can also cause that broker to lose their license as an investment banker or broker/dealer. The broker must stick to the facts when it comes to the advice the investor is seeking. For example, if the investor is seeking clarity regarding a group of mutual funds, the investor’s response should be unambiguous because the broker is biased. Keep it simple and clear.

b. Lack of full disclosure

i. Too often we look for the easy way out of things. When it comes to financial matters, one can never be too detailed. The investor expects full disclosure. He never cut corners in the name of convenience. Plus, if something goes wrong in the market, you’ll rest easy knowing you’ve served the customer well. The broker is obligated to ensure that when the investor buys a product from him, the investor is making an informed decision.

against breach of confidentiality

i. This is the “holy grail” for a long life in this industry. If a broker violates client confidentiality, he can kiss his career goodbye. This is like having a bad rap sheet that follows you everywhere you go. The broker may face possible reports to the Securities and Exchange Commission (SEC).

d. Neglect to offer alternatives

i. It is said that a person who works on commission will tell you everything he thinks you want to hear to close the deal or sale. This is why insurance professionals, car salesmen/women, and real estate agents have a hard time with people who trust them. People don’t feel confident that they are being given all the data and options that are available to them. That they are only being told what the Seller wants them to know, to speed up their options so that the decision made is for the benefit of the seller. The broker must not allow this to be said of them. Trust is the key to building lasting relationships. Give your customers options and help guide them in making decisions – they’ll do the right thing and you’ve earned a long-term, loyal prospect.

“The plans of the diligent certainly lead to abundance, but everyone who is hasty only leads to poverty”
Proverbs 21:5 (esv)

In the next issue:

Question 2: What are some rules a broker must follow?