ORLANDO, Fla. -- "What's a lie you've told recently?"
Behavioral scientist and University of Toronto professor Nina Mažar challenged the audience at the closing general session of the IMCA annual conference with the indelicate question. The point, Mažar explained, is that humans have the tendency to lie in some fashion more frequently than we may like to admit.
"The good news is people are mostly honest -- yet dishonesty is so prevalent in everyday life," Mažar says. "We humans are so good at selective attention and reinterpreting reality that as long as we cheat only by a small amount, we can use rationalization tricks to still feel pretty good about ourselves."
Referencing the tenets of the IMCA Code of Professional Responsibility -- particularly full disclosure -- Mažar offered practice management tips for advisors who want to fight the impulse to rationalize dishonesty and preserve their client relationships.
Disclosure is no deterrent against lying, Mažar says, urging the audience to understand how informing clients of conflict of interests in particular can result in some "perverse effects" on both the advisor and the client.
Advisors should question advice given even after they've made disclosures to clients, she suggests. "There is research that shows that conflicted advisors, once they have disclosed a conflict of interest, can inflate their biased advice," Mažar says. "An act of disclosure can act as a moral license that undermines the motivation to adhere to professional standards."
Advisors should also be aware of how disclosure might negatively affect the way clients approach the relationship.
"If disclosure increases trust but because the advisee is misinterpreting the advisor's disclosed [conflict] as indication of his or her professional standing, it can be misleading," says Mažar.
Sometimes, clients can feel added pressure to comply to advice because they may feel obligated to satisfy advisor interests after conflicts are disclosed, she adds. A survey asking clients how they feel when receiving advice is one option to consider, she suggests, as this can offer good insight into how the advisor-client relationship is affected -- negatively and positively -- by disclosure.
Citing various case studies, Mažar says committing to a personalized moral code of conduct prevents dishonest impulses from taking hold.
Her advice for planners? Create a checklist setting clear and specific rules of conduct. This means establishing these codes at the beginning of any client relationship and thinking about the language used in the office to describe them on an everyday basis.
Get specific: "'You should not accept gifts from mutual fund providers' is less subject to motivated reasoning than saying, 'Advisors should not engage of conflicts of interest," says Mažar.
Part of streamlining best practices regarding honesty within your practice is emulating good examples yourself or colleagues have set, Mažar says.
"Publicly acknowledge and recognize role model behavior. Try to create a culture or self-image where you encourage or celebrate behaviors like proactive withdrawing from an assignment and admitting violations early on."
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