When I think of an ethical person or cooperation, I think of someone who has strong morals and goes the extra mile to do what is right. The opposite applies to an unethical person or cooperation. This is someone who only has their interest at heart and doesn’t care who gets hurt. An unethical person takes advantage of people’s trust. We are going to look at two examples out of thousands, where Financial Advisors were unethical with their clients’ money. Specifically, the future Hall of Famer, Tim Duncan, and the Dallas Police and Fire Pension. We will also look at what the new Department of Labor (DOL) regulation put into place to try and curb unethical Financial Advisors.
Let us further explore what it means to be unethical and, more importantly, an unethical Financial Advisor. Being an unethical person means you have low morals. Two main examples come to mind, Enron and Bernard Madoff. If you remember Enron lied about its financials and got caught. Bernard Madoff is a great example because he was an unethical Financial Advisor who operated a Ponzi scheme, which was considered to be the largest financial fraud in history. Throughout all my training as a Financial Advisor the two main reasons I have seen advisors be unethical are, greed and performance-based results. Wanting to be rich and not get fired are huge motivating factors for Financial Advisors. I do not think very many people enter this industry with the idea of swindling people out of money, but somewhere along the way, it becomes second nature.
Disclosures to clients are extremely important because the majority of the time the disclosures are about the hidden fees or cost associated with doing business. For example, to sell a certain mutual fund, an advisor may not disclose the above average, yearly, internal cost of two percent. This may not seem like a lot, but imagine having that same two percent for the next 20 years. It can start to add up, especially w...