Leaders of the financial services industry seem rarely held to account for failures to achieve ethical and professional standards. Financial advisors have had to bear the brunt of the blame.
In recent years, there has been a notable increase in the requirement for advisors to understand professional ethics as part of their initial and continuing education. What is absent from efforts to improve advisor behaviour is recognition of leadership’s influence. One wonders if the intent is to place total accountability on the shoulders of those in front-line, client-facing roles.
Regulators, for example, seem to almost exclusively identify advisors when transgressions of rules or standards occur. Those who recruit, train and supervise those advisors are almost never identified. The responsibility of the people who create and nurture the environment that produces advisor behaviour are rarely, if ever, acknowledged.
Regardless of the size of an organization, its leadership determines its culture, and the culture profoundly influences the behaviour of its members. This leadership expresses itself through various roles and positions, from the executive team to various levels of management and supervision, and includes advisors of status. This is true of dealerships as well as professional associations.
One of the ways an organization influences behaviour is by membership selection — recruitment strategies and policies. By selecting advisors who are competitive and driven by the pursuit of personal wealth and status, an organization may end up with members who place their own wants ahead of client needs. It will have advisors who prioritize these values of wealth and status when making behavioural choices. While leadership may be quick to chastise choices that are unethical or unprofessional, it should also acknowledge its contribution to those situations.
Organizations also significantly influence advisor behaviour through reward and recognition programs. Such programs that celebrate sales and corporate revenue, instead of client outcomes, may encourage unethical advisor behaviour. A leader who is also recognized and rewarded for similar metrics may be influenced in their own supervisory and management behaviour. One might turn a blind eye to the sometimes-questionable behaviour of an otherwise high-performing advisor, until a complaint is made.
Advisors will be quick to recognize when an organization lacks integrity — when the behaviour of its leaders is inconsistent with the stated values and priorities — and they will adjust their behaviour accordingly. An organization whose leaders fail to demonstrate a sincere commitment to a culture that embraces the value of compliance will ultimately produce the same level of commitment in their front-line roles.
Some organizations, including professional associations, fail to create or effectively apply a code of ethics. Such a code has meaning and value only if it is discussed, reinforced and applied within the organization. Rather than being a message that sets expectations and standards of behaviour, a code of ethics left undiscussed and unreinforced messages that such a code is not important.
These characteristics of financial services organizations and the resulting cultures have developed over decades and can be expected to persist. So, shifting the appropriate level of accountability for advisor behaviour to leadership may face some resistance. Such changes, though, may begin with improving education and training.
These organizations can require that leaders receive ethics education and training that is appropriate for their roles, as is required for advisors. Additionally, organizations can apply appropriate human and financial resources toward the development and delivery of such education.
Further, financial services organizations can implement carrot-and-stick incentives to influence behaviour. Reward and recognition programs, for example, can evolve to celebrate positive ethics or compliance-related behaviour (along with revenue-related behaviour). The reporting and naming of specific advisors whose ethics and professional behaviour is condemned could include specifically naming their supervisors, managers, trainers, etc.
Unless organizations evolve to recognize and address the role that leaders play in advisor behaviour, one wonders if the increased attention on advisor ethics is more about public relations and appearances than improving the industry. We will know that the financial services industry is truly committed to achieving higher ethical and professional standards when that critical spotlight shines on the behaviour of leaders as well as advisors.
Rod Burylo, CIM, FCSI, is manager of investment fund manager and exempt market dealer services with Axcess Capital Advisors in Calgary.