Updated Monday, April 21, 2014 as of 5:39 AM ET
Blogs - The Advisors' Coach
An Advisory Code of Conduct
Friday, May 31, 2013
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One of the hallmarks of being a professional is the adherence to a common set of standards or code of conduct.  Physicians, lawyers and accountants all have a comprehensive, detailed set of rules or best practices that govern their actions in providing services to their clients.    

Unfortunately, not all financial advisors have a consistent, universal code. 

There are two basic standards governing the behavior of financial advisors — a “suitability” standard and a higher “fiduciary” standard. 

Most investors are unaware of which standard their financial professional is working under, though most assume their advisor puts their interests ahead of the advisor’s own. 

If a code of conduct governs specific individuals, what happens when multiple professionals — a wealth manager, CPA, estate planning attorney and insurance professional — are working together on behalf of a common client?  While each individual in this group has to meet the standards of their particular discipline, should there be a code of conduct that applies to all the members of this team, regardless of license or designation? 

Here are the key principles that we believe should guide the members of a wealth advisory team in order to best serve their mutual clients:

1. Do No Harm

While never using this exact phrase, Hippocrates set this principle as the foundation for a set of medical ethics still in use today.  This concept applies equally well to clients of financial professionals.  Clients should always end up in a more favorable position after the engagement than they were before, net of the fees paid.

2. We will always put our clients’ interests before our own

This is the basic definition of a fiduciary, and some of the members of the team may already be legally operating under this standard.  However, regardless of what underlying standard each individual may be required to meet, the team as a whole should agree to adopt this standard, if not legally, then morally.  Some professionals cannot be legally bound by this standard (such as life insurance brokers); however, they should be able to outline their due diligence process and rationale for making their recommendations, including any conflicts of interest.  Bottom line: the group should adopt the most stringent standard applied to any of the individual members.

3. We will tailor our advice to our clients’ objectives and in line with their values

Each client’s overall goals and objectives should be at the forefront of all advice, and that advice should be congruent with the client’s individual values.  An effective client discovery process is essential in determining these objectives, and each professional should share the results of these conversations with other team members (pursuant to client approval, of course).  While this may seem rather obvious, it is seldom practiced.  For example, estate planning attorneys usually believe that the most important objective for the client is to avoid estate taxes, but is that always really the client’s main objective?  While many clients may want to minimize the tax impact of their financial decisions, they may be more concerned with legacy goals or not wanting to leave so much money to heirs that they become unproductive and unmotivated members of society.  Team members should ensure that their own personal values do not overshadow those of their clients.

4. We will collaborate, not compete

True collaboration can take place only in an environment where trust, openness, respect and communication can take place without the clashing of individual egos.  Putting aside our own egos for the good of the client is essential to making this type of relationship effective.

5. We will communicate openly and honestly

No single person has a monopoly on good ideas.  In fact, one of the benefits of collaboration is that the team is often able to come up with better solutions than the individuals working solo.  All team members should feel comfortable questioning one another, or asking for clarification and not be limited just to their area of expertise.

6. We will respect each other’s opinion, even though we may disagree

Collaborating allows for discussion and debate of each other’s opinions, but reaching a consensus opinion should be the goal.  The client should be made aware of the types of issues that were discussed in reaching this conclusion, as it will be the client who will ultimately need to make the final decision.

7. We will always value strategy over tactics

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