Within the financial world, there are many areas of focus such as accounting, economics, valuation, or derivatives. And, of course, there is ethics. I want to teach you 10 ways that ethics can add value to you.
Watch the video with me or read below.
Students of finance usually have two objectives. First is to learn the basics and second is to build a competitive advantage in any of these areas.
When I started in the financial world before the Internet took off, a person could easily build a competitive advantage in any of these areas. But things have changed.
Information is nearly free and available to almost everyone. There are many more participants in the financial markets; and, most importantly, areas such as valuation are hypercompetitive.
Consider the tens of thousands of outsources in India now building financial valuation models for big investment banks; or how about the millions of dollars being spent to achieve a millisecond trading advantage.
If you are starting your career in the financial industry today, the opportunity to build a competitive advantage in any one area is nearly gone—except for one area.
Because of the selfish nature of man, you can easily build a long-lasting competitive advantage in the area of ethics.
In this lecture, I will explain how you can build that competitive advantage in ethics. I will teach you 10 ways that ethics adds value to you.
There are two broad categories that we will discuss. The first is being ethical in your interactions with others, and the second is being ethical in the way you do your job.
Let’s get started with the way you interact with others.
In the financial world, what’s most important is that the client comes first. The client’s interest comes ahead of your employer’s interest and, most definitely, ahead of your own.
Once you’ve done the right thing for the client, the next in line is the company that you work for. The interest of your company also comes before your own.
Of course, there are others you would deal with such as coworkers and, in some cases, the general public. But the highest priority will always remain your client.
I’ve met newcomers to finance who have said that the reason they came into the industry is to make a lot of money. They talked about learning the ins and outs and then starting to trade their own portfolio from what they’ve learned.
What I have learned is that these people have it backwards. Instead, if you focus first on serving the interest of your clients, your client list will grow and the benefits of higher pay, bonuses, and other rewards will come to you.
But if your only focus is building up your own stock portfolio, then you will make some progress but coworkers and clients will feel that your loyalty is to yourself rather than to your client. And, over time, as they find this out, you will lose them.
So consider this a wake-up call to change your focus to your client and become a person who has built a competitive advantage in the areas of ethics.
Let’s get to the 10 ways in building that advantage…
Webster’s Dictionary defines “loyal” as having or showing complete and constant support for someone.
In the financial world, loyalty means always putting your client’s interest first ahead of your employer’s and ahead of your own. The needs of the client come first.
One way I’d like to think of this is that we should treat our clients the same way we would like a financial adviser to treat us. Or how about our family, Mom and Dad?
To give an example, in my case, my mother and father had a financial planner and he was pretty darn loyal; and he did put their interest first. So they’ve been able to enjoy a secure and happy retirement, and I don’t have to support them.
But, imagine, if that adviser had put his or his boss’s interest first, he may have done things that would have lost my parents money and left them with a struggle at retirement.
Be a person who is loyal to your client, a person who puts your client’s interest first and your interest last on the list, and you will be a rare person.
In the financial world, remember, rare is valuable.
Webster’s Dictionary defines “trustworthy” as being able to be relied on to do or provide what is needed or right, or someone deserving of trust or is dependable. You want to become a person whom other people know they can rely on.
Here’s something to think about: How many people do you actually trust in this world?
If you had a deep secret and you wanted to tell someone but you wanted to make sure that the person that you reveal it to would not share it with anybody else, how many people would you trust with this information?
When I’ve asked these questions to students in my classes over the years, the answers I typically got are “one person”, “maybe two”, and occasionally, “three.” This shows just how rare trust is in life. Remember that trust is built over time and lost in seconds.
I have three different business partners whom I’ve known for between 15 and 35 years. Not once during that time did I feel that they’ve betrayed my trust. And I’ve been trustworthy with them. That trust is the core foundation for success in business.
The point is there are very few people that you can truly rely on and trust in this world. So make it your life’s desire to become one of those people. If you are loyal and trustworthy, you’ll be rare. And rare is valuable.
Webster’s Dictionary defines “fair” as treating people in a way that does not favor some over others—to be impartial, honest, and to be free from self-interest, prejudice, or favoritism.
In the world of finance, you should deal fairly with all clients based on their needs. This means that you don’t give any one client your recommendations before the other.
Of course, there are times when different clients require or even pay for different levels of service. But that does not justify giving information in an unfair way to any one client.
To give an example, when I was an analyst at an investment bank, it was my job to write reports that gave recommendations on what stocks to buy or sell, and then distribute those reports to clients who, in my case, were institutional investors.
Some of those clients liked me more than others; some also paid my firm more than others; and some of them I just enjoyed talking to more than others.
But my obligation to be fair meant that I needed to make sure that I distributed my research to all my clients at the same time equally; then and only then could I offer a premium level of service to some of my clients such as calling them and walking them through my analyses and recommendations.
But for the sake of fairness, when I provided that premium service, I needed to make sure that what I told them contained no recommendations that I had not disclosed to other clients.
Imagine that you acquired a relatively small client and that client had faith that he was receiving the same information as your larger clients. That client would appreciate your fairness and would likely stay with you until he became a big client. Then, when he got big, he would know better than to even ask you to unfairly distribute your recommendations.
You see, life becomes easier when you demonstrate your commitment to ethics. So be loyal, trustworthy, and fair with your clients, and you will be very rare. And, remember, rare is valuable.
Webster’s Dictionary defines “confidential” as when you’re saying something that is private or secret. In the world of finance, we sometimes refer to it as “non-public information.”
Being confidential means that you need to make sure that you protect the privacy of your clients and—don’t forget—of your employer, too. Make sure that nothing ever leaks out from you. In general approach, everything is confidential with regards to prior, current, and prospective clients. Everything—even your client’s name.
The only time this does not apply is when the client has done something illegal or when the client has volunteered information such as when we sign a credit card application for them and it asks for permission for the bank to release our credit information to a national credit bureau. We’ve released by volunteering that information.
And the final case is if it’s required to be disclosed by the government such as banks reporting requirements to a central bank or a regulator. But with the exception of these three very rare cases, you should never speak either about your client’s or your employer’s information.
Let me tell you a story. Think about a time when you got off work and you had a drink with your friends. Imagine that one of your friends said, “Man, I had a rough day. Remember that tough client I was telling you about, Bob Smith, that one who is really difficult? Well, he was screaming at me today over the phone because I wasn’t able to buy enough IBM stock?”
Boom! Right there, your friend just breached confidentiality when his guard was down. Make a commitment to yourself that you will be the person who never reveals information about your client or your employer.
To be loyal to your client, to be a trustworthy person, to be fair in the way that you deal with all your clients, and to be a person who upholds confidentiality will make you a very rare person. And, remember, rare is valuable.
Webster’s Dictionary defines “conflict” as a competitive or posing action. “Conflict of interest” is defined as a conflict between a person’s private interest and their official responsibilities in a position of trust like your job.
In life, there are always conflicts of interest; and, in business, there are even more. Conflicts will never be eliminated. For instance, a conflict of interest could be when a sales person, let’s say, earns a commission for selling a particular product. Hey, this is just part of business, but commission sets up a conflict between a sales person’s interest and the client’s interest.
Though we can try to reduce conflicts of interest, the more important thing is to reveal them to our clients before they take action such as in the case where an investment adviser could be biased because of the commission she receives from a particular product.
For instance, an adviser is selling two different mutual funds and she receives a higher commission for Fund A than she does for Fund B. Can she recommend Fund A over B? Yes, she can as long as she’s come to that conclusion with the client’s interest in mind.
Let’s say that she has looked into Fund A’s performance and risk level and made her expectation of future performance. Then, based upon this analysis, she decides to recommend Fund A to the client. Is this okay?
Yes, it is just as long as the decision has been made objectively and with diligence and, most importantly, as long as the sales person reveals upfront that she’s getting a higher commission on that product. With this information, the client is able to make his own decision understanding that the conflict of interest may influence that recommendation from that sales person.
To sum it up, I’ve taught you five ways that ethics can add value to you through your interactions with others: by being loyal, trustworthy, fair, by upholding confidentiality, and by always disclosing conflicts of interests.
If you put these five words into action in your life, you will truly be rare and you will be very valuable.
We have reviewed five ways that ethics can add value to you with regards to your interactions with others. But it’s important to know that ethics also applies to the way that you do your work or your job.
Let’s review five ways that ethics can add value to you based upon how you work…
The first way to add value through your work is to be diligent. Webster’s Dictionary defines “diligent” as characterized by study and earnest energetic effort. To be diligent means to work hard to completion. Simple!
If you are diligent, your client knows that you will persevere in the application of your knowledge and skill, and that you won’t give up. A diligent worker is rare. In the financial world, remember, rare is valuable.
Webster’s Dictionary defines “independent” as not subject to control by others, not relying on someone else, and not looking to others for one’s opinion or for guidance. Most people spend their lives following others. Instead, you can stand out from the crowd by becoming a person who determines things for yourself.
Many of us spend our lives being dependent on our parents, teachers, bosses, maybe our friends, or lots of other people in our lives. Instead, learn to depend on yourself. Your goal in your education and training in the financial world is to build a strong foundation of the basics so that you can begin to depend on your own thinking. Without this basic knowledge, this will prove very difficult, if not impossible.
To be successful at my job as a financial analyst, independent thinking is required. To make money in the stock market, you can’t just follow the crowd. If it were that easy, we’d all be rich and your client wouldn’t even need you. They’d just follow whatever is printed in the newspaper.
So I repeat: In order to make money in the financial world, you need to learn to make independent decisions based on your best judgment. It may be right; it may be wrong. But be independent.
Let’s consider an example. Let’s say you’re in an elevator and you overhear two guys talking; and one of them says they like Stock ABC and, let’s say, that the person is a famous stock market investor. Would you call your clients after that and tell them to buy ABC? If you did that, you wouldn’t be acting very independently.
To be independent, you need to take that information along with your own analysis and come up with your own independent conclusion. Now, if that independent conclusion is to buy the stock that you heard being talked about, that’s fine. Just make sure that the recommendations that you give to your clients come from the work you have done.
To be diligent and independent is rare. And rare is valuable.
Webster’s Dictionary defines “objective” as expressing or dealing with facts or conditions as perceived without distortion by personal feelings or prejudices or interpretations. If you are objective, you deal with facts or conditions as you see them without allowing distortions to cloud your judgment. To be valuable, be someone who can look at both sides of a situation objectively. Try to understand the pros and cons. How about writing them down? But try to apply none of your personal biases or the biases of your client.
One way I found helpful in being objective is to seek out knowledgeable people, people who are on opposing sides of the argument. Try to understand their ideas and, from that, make your own objective decision as to what you believe and what you will recommend to your clients. Of course, you cannot be an expert on every topic but you can go to experts on both sides and use their passion and knowledge to inform yourself. You can construct your own opinions on a topic by doing this.
To be diligent, independent, and truly objective, you will be rare. And rare is valuable.
Webster’s Dictionary defines “thorough” as including every possible part or detail and being careful about doing something in an accurate and exact way. It’s also defined as “carried through to completion.” If you are a thorough person, this means that you’re looking at your work from all angles and you’re never leaving a job half done.
Let me tell you a story about when I was head of research in my prior job. I oversaw a team of analysts. One of those guys worked for me over the years, and he was extremely thorough. He wasn’t the fastest and he wasn’t the slowest either, but what he produced had been thoroughly thought through; and it made my job easier.
He had investigated before he brought it to the client. The result was that his presentations to the clients were really very smooth, and the clients could clearly feel that he had worked hard on the recommendation he was presenting. The client felt valued.
On the other hand, I worked with some weak analysts and those analysts showed a lack of thoroughness. When a weak analyst presented his recommendation, the client immediately shot it full of holes. Then, the analyst would have to go back and rethink the analysis.
Of course, remember, the client can always feel when a person is not thorough in his work, and who wants to pay for that? The client doesn’t. So, be the analyst who is thorough and be more valuable to your client because when your work is thorough, you’ll be building trust with your client.
When you are diligent, independent, objective, and thorough, you will be truly rare. And rare is valuable.
Wikipedia describes this as an ongoing effort to improve products, services, or processes. These efforts can lead to incremental improvement over time or to a breakthrough improvement all at once. I don’t have to tell you that the financial markets are extremely complex. Our knowledge is just tiny compared to the total knowledge available. For the best interest of our clients, it’s important that we continually improve our knowledge. Be a person who is constantly talking to others.
How about taking notes? listening? attending seminars? reading books and looking for new ideas? I’ve read lots of books. Stay humble in your knowledge and make continual improvement a lifelong process.
If you are diligent, independent, objective, thorough, and you continually improve yourself, you will be a very rare person in the financial world. And rare is valuable.
We have learned ten ways that ethics adds value to you—five through your interactions with others and five through the way that you do your work. I challenge you to make it your personal goal to be a person who lives up to the meaning of all ten of these powerful words.
Become a truly ethical person in all of your actions and you will find that people will come to rely on you. They will look to you for guidance. You will find that you don’t even need to market yourself. Clients will want to stay with you and they will want to recommend you to friends.
And through your steady effort, if you guide your life on an ethical plane, a way that so few people actually behave, you will truly become a very rare person. And always remember, in this financial world, rare is valuable.
Let’s discuss ethics! What ethical dilemmas are you facing in the world of investing?
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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.