The Four “Agreements” Between Society and Finance

When John Taft, CEO of RBC Wealth Management-U.S., asked me to distill, summarize and connect the various messaging running through his new book, A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism, it got me thinking about the future of finance and how financial services can once again become a force for good in society.

I began my effort by reading early drafts of all the contributions. The topics that emerged from the essays contributed by luminaries such as Jack Bogle, Charles Ellis, and Robert Shiller, among others included authenticity, responsibility, transparency, and honesty to name a few. While subjects such as these absolutely should be a central focus of finance, they have historically been the domain of philosophers. As such, I quickly perused my collection of philosophy books and stumbled upon one that seemed profoundly pertinent.

So, before writing my essay for John, I turned to ancient Mexican philosophy for inspiration, and, in particular, to Don Miquel Ruiz, a medical surgeon turned Shaman, who wrote The Four Agreements: A Practical Guide to Personal Freedom. Ruiz’s book, rooted in traditional Toltec wisdom beliefs, contends that there are four agreements in life that are essential steps on the path to personal freedom. The framework of Ruiz’s book has stunning relevance for our current attempt to reset finance, which prompted me to develop four “agreements” between society and finance, agreements that form a basis for finance to contribute, in a more consistently positive way, to social good.

Agreement one: The first agreement described by Ruiz is for individuals to be “impeccable with your word.” This sounds like a call for authenticity and transparency. Finance tends to attract ambitious and intelligent people who are, for the most part, hard-working and honest. But a few bad apples, however, can rapidly destroy the trust that is so essential for finance to function effectively. The industry is heavily regulated to try to protect investors from these bad apples, but it is my belief that the industry as a whole needs to hold itself to a higher standard than mere compliance with regulatory and legal requirements. Therefore, the first finance agreement should be: Individuals and entities in the financial services industry agree to be honest and authentic, not merely compliant.

Agreement two: The second agreement proposed by Ruiz is “Don’t take anything personally,” which I loosely interpret as “it’s not about you.” Effectively, this is a call to move away from the self-centeredness that dominates our world toward an interpretation of events as not being about you—that is, a call for humbleness. Finance is an enabler, not an end unto itself, and is entirely dependent on the “real” world. Finance exists to fulfill the needs of its clients—it is a service function. This leads me to my second recommended financial agreement: Financiers agree to acknowledge, accept and embrace the priority of client interests.

Agreement three: The third agreement described by Ruiz is “don’t make assumptions” and suggests greater communication and transparency in one’s interactions. The finance equivalent, I believe, is a call for transparency and a clear articulation of potential conflicts of interest and the incentives financiers face. We need to rethink compensation for financiers in the context of behavioral implications—through the current compensation model, who are we motivating and why. Financiers are not always incentivized to make decisions based on the best interests of clients, but rather what makes the most money for the company. All of this leads to my third proposed finance agreement: Finance agrees to be transparent about potential conflicts of interest.

Agreement four: The fourth agreement presented by Ruiz is to “always do your best.” I interpret this as acknowledgement that, while we will never be perfect, we should try to get as close as possible. Consider the newly booming field of goals-based investing. The concept is fairly straightforward—most investment advisors focus on a client’s risk tolerance and then maximize returns. But what if instead, advisors focused on achieving specific objectives? By shifting perspective to a narrow range of clients’ objectives, we could increase the odds of achieving them. This goals-based investing logic leads me to the fourth finance agreement: Finance agrees to focus on understanding client objectives and increase the odds of achieving them.

The future of finance is beginning now. Let it commence with our Four Financial Agreements in mind, and a philosophy that emphasizes responsibility rather than privilege.

These ideas were outlined in an essay Vikram Mansharamani contributed to the book A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism, edited by John Taft (Palgrave Macmillan).

Other stories in this series:

• The Path to Enlightened Finance
• A Makeover for Capitalism
• Reforming the American Dream

Ideas and content from A Force for Good by John G. Taft. Copyright ? 2015 by the author and reprinted by permission of Palgrave Macmillan, a division of St. Martin’s Press, LLC.