Q&A: Have You Ever Been Publicly Disciplined for Any Unlawful or Unethical Actions in Your Career?

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In the CFP Board’s “Ten Questions to Ask Your Financial Advisor ” they suggest, “Before establishing a relationship with a financial planner you will want to interview several people to make sure they’re the right match for you and exhibit key traits of a good advisor. Here are 10 important questions to ask before selecting a financial planner.”

In this series we are both providing an answer for Marotta Wealth Management as well as giving a longer analysis about the question, why the CFP Board may have included it, and how other organizations might answer if they were being truthful.

The tenth question is about unethical actions. As the CFP Board says in their description, there are many boards and agencies which keep tract of any public discipline that a registered advisor has experienced. However, sadly just because they keep track of it doesn’t mean that consumers look at it. The CFP Board likely includes this question to try and help consumers avoid shady professionals.

10. Have you ever been publicly disciplined for any unlawful or unethical actions in your career?

CFP Board, the Financial Industry Regulatory Authority (FINRA) and your state insurance and securities departments each keep records on the disciplinary history of financial planners and advisors. Ask which organizations the planner is regulated by and contact these groups to conduct a background check. CFP® professionals are subject to disciplinary action if they violate CFP Board’s standards.

Our answer to this question is easy: No.

Consumers often presume that an advisor associated with a large commission-based brokerage firm will have a team of managers supervising their advisor. This is a misconception. At large firms, compliance is often done by a team of lawyers at corporate headquarters, while the individual advisor at a large brokerage firm may have no more compliance, ethics training, or oversight than whatever seminar attendance is required every two years. One of the most common Securities and Exchange Commission violations found at large firms is failure to provide adequate supervision and monitoring of what their commission-based advisors were doing, often in order to generate the largest possible commissions. Incentives matter. With the wrong incentives in place, it can be difficult for even well intentioned advisors to overcome the subconscious temptation to rationalize their actions.

The message that investment advisors may just be wolves in sheep’s clothing is a message that we say a lot in our articles. Sadly though, simply doing a background check for public violations won’t protect you.

Current Financial Services legislation in the United States allows registered advisors to engage in practices which we would consider unethical and other countries would consider illegal. Meanwhile, even President Obama and the advisor he singled out as a shining example of an advisor who puts client interests first may not have followed the Securities and Exchange Commission’s rules.

Ethics and Rule-Following are not the same thing. Ethics is principles-based, but financial regulation has defined adherence to a set of rules instead.

Often regulation annoys the good guys, and doesn’t stop the bad guys. You can’t regulate crooks.

I’ve been asked if investors should trust their financial advisors. You may be surprised to hear that my short answer is “No.” Given all the greed and deceit in the world of financial services you shouldn’t have to trust your financial advisor. You should make sure that you have taken careful steps to safeguard your money. Make sure that there are no incentives or structures in place to jeopardize the safety of your money. To help you implement this we drafted eight principles to safeguard your money.

We believe following these principles provides a better safeguard than checking for past violations.

Give us a call to get started today!

Photo by Phil Botha on Unsplash

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.

Follow Megan Russell:

Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.