You Get What You Expect…

This last week I had the privilege of speaking to the Investment Management Consultants Association (IMCA), an organization with over 10,500 members. Established in 1985, the Association offers the premier investment consulting and wealth management credentials and educational conferences, research and publications that are considered the best in class. The Association offers certification in 28 different countries.

IMCA is well known and respected for setting the standards and practices for the investment management consulting practices. Their members manage portfolios which are more than 7 times the industry average, and advise more high-end clients than any other advisors in the industry. Their affiliations range from the smaller independent shops, to Charles Schwab, Wells Fargo Financial Advisors and Bankers Trust, among others.

What I found intriguing though, was the respect and attention paid to ethics. Each member must subscribe to and each designee must adhere to the Organization’s Code of Professional Responsibility. Their Standards of Practice and Performance provides guidance to their members in the course of conducting their practice and providing services to their high wealth clients.

The group is a worldwide organization; consequently there is a wide range of diversity in how business is conducted. Yet their meticulous attention to doing what is right makes this group stand out. They don’t just talk about a code of conduct, they expect and demand adherence to it. And if others did the same, we wouldn’t be grappling with some of the issues I have discussed before.

What does honor take?

I talked about Dr. Dan Ariely’s work regarding how 70% of people cheat and how to combat that. If the best is expected, and ethics are the cornerstone of a company, that’s how business will be conducted. Contrast that to how some bankers and others still may not truly expect their employees to display ethical behavior, and so they don’t.

Ariely had mentioned that if we are removed from the source of money, it’s easier to cheat. And, certainly investment advisors are removed as they are advising about stocks, bonds and ventures and so on — so they typically don’t touch the cash.

What do you do if you’re working on a commission basis as some are, and you know you can receive more commission by recommending one investment product over another? What if one fund isn’t delivering on its promise, but it pays a higher commission? Do you fire them? In the world of high stakes, there are so many slippery slopes.

As Ariely’s research showed, human nature shares a fundamental trait — dishonesty. There’s a fine line between what we perceive to be the truth and what Dr. Ariely calls the “fudge factor.”

If the further away we are from a source of money, the greater our chance of cheating, then it is critical that when one is recommending investment products, the more personally involved and committed to the client’s best interests one needs to be. Being with IMCA got me thinking that if anyone and everyone who worked with the public, whether wealth manager or car salesperson, put the absolute interest of their customer first, would greed still win out? If we absolutely took the best interest of our customer to heart, wouldn’t we have to do the right thing? I think so.

IMCA, unlike many organizations, both requires and truly expects adherence to a code of ethics. That gives them an advantage. What if every company both required and expected a commitment to a code of ethics, would we have more “Honesty Stores,” as Ariely talks about in his research?

I would wish so. But, I think IMCA is a vast step ahead. With members in 28 countries, adherence to a standard is challenging. Yet that’s the reason for having standards and paying attention to performance. You get what you expect, in many cases. Have guidelines, set the standard high and expect them to be followed.

If there is exposure to a code of ethics and an expectation to follow them, there is remarkably less self interest. What a concept, and we all benefit. I commend my client for its commitment to honor. Not an easy task. So what are you doing within your own organization to establish guidelines and expectations that ensure honesty and a commitment to ethics?

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Richard Bowen was a Business Chief Underwriter for Mortgages for Citigroup during the housing bubble financial crisis meltdown. He saw fraud first hand inside Citigroup in the way the company underwrote mortgages. 

https://www.richardmbowen.com