Altruism: The real ethical dilemma faced by financial plannersArticle added by David Lewis on January 15, 2013
David C. Lewis, RFC

David Lewis

Durham, NC

Joined: January 04, 2013

My Company

Until the industry stands up and proclaims its right to exist without any government interference or regulation, until advisors learn to be truly proud of their profession and throw off the pretense of altruism, we will continue down our own road to moral and political serfdom.

Many financial advisors are focusing on the so-called fiscal cliff and the recent deal struck in Congress, but there's another problem that has gone largely unaddressed since the creation of the financial planning profession — a moral problem. An article published last year in an issue of Financial Planning, titled "The Ethics Dilemma" captures the essence of this problem:
    "In theory, planners are expected to act as fiduciaries for their clients, meaning that a planner must put a client's best interests ahead of his or her own. In practice, no human being is truly capable of doing this because in the real world our ethics aren't pure."
The conclusion drawn by the author is:
    " every other human being on the planet, my ethics aren't absolute. Financial planners have many conflicts of interests with their clients..."
In other words, the author of "The Ethics Dilemma" believes that financial planners need to hold themselves up to an impossible moral ideal. In philosophy, this is called the moral-practical dichotomy. Not only is it harmful to your practice, it's extremely unfair to your client.

Altruism is the real problem

Altruism is derived from the Latin word "alter," meaning "other." Altruism literally means "other-ism." It's the placing of others' interests above your own. In other words, altruism boils down to self-sacrifice. This moral theory does not make sacrificing to others optional. According to altruism, sacrifice to others is a moral duty — a requirement. We see this moral code being promoted everywhere in the financial planning industry.

For example, the Certified Financial Planner Board of Standards stipulates, as part of its internal ethical code, that all advisors adhere to the board's concept of integrity: "Integrity demands honesty and candor which must not be subordinated to personal gain and advantage."
The International Association of Registered Financial Consultants believes that we should, "at all times put my client’s interest above my own." Clearly, this statement is drawn from the ethics of altruism.

The National Association of Personal Financial Advisors prides itself on the fact its financial planners offer "fee-only" financial advice. It attempts to strip out any conflict of interest from the advisor-client relationship by adding this to its ethical code: "Dealings and recommendation with clients will always be in the client’s best interests. NAPFA members put their clients first."

On the surface, it sounds like these organizations are promoting and fostering an industry of goodwill and benevolence. Putting clients first, we're told, protects them. Protects them from whom? Here, the issue becomes more clear.

The implication in all of these ethical codes is that honesty and integrity are at odds with personal gain, and that the former must take precedence over the latter. This would only make sense if the profit motive is inherently dishonest, evil, morally bad. After all, if advisors put their own interests first, it must mean that advisors have to profit at the expense of their clients. The solution, then, is to make sure that clients come first, not advisors. This way, clients win. Who loses? Presumably, advisors do. After all, if someone's interest is subordinate to another's, that other person is, by definition, the loser.

In an industry whose growth is entirely dependent on being selfish and profit-driven, this presents an awful moral dilemma. Advisors are faced with two ugly choices: do what is necessary to build a profitable practice and ignore (partially or totally) the ethical standards set forth by industry organizations, or consistently adhere to a moral code that will ultimately bankrupt them by demanding that a client's interests always come before an advisor's.

After all, if the industry is serious about its commitment to putting clients first, then it shouldn't advocate charging any kind of fee for services rendered. If altruism is to be taken seriously, then charging a client fees, whether it's a commission or hourly rate, is not in a client's best interest. After all, the client needs that money to invest. Any personal gain flies in the face of what's allegedly best for the client. What's best for the client would be free advice — the very best advice the advisor can give. That would be the ultimate sacrifice, the ultimate way to "put clients' interests first."

The ethics of these industry organizations do not say "put your clients' interests first, sometimes" or "put your clients first, but make sure you make money, too." It says "at all times put my client’s interest above my own" and "members put their clients first."
Altruism isn't and can never be benevolent

Most people believe that altruism means "benevolence," but this is false. Altruism demands — as a moral duty — that others be placed first. Duty, meaning, "that which is owing," makes the issue of benevolence impossible precisely because benevolence requires choice.

In practice, the theory of altruism is harmful to an advisor because it foists unearned guilt onto his shoulders every time he accepts a check from his client for services paid. It's unfair and unjust to the client because, by implication, the client becomes the evil one. The one who must profit at the advisor's expense — the selfish one who accepts the sacrifices of the advisor. The advisor ends up serving his worst moral enemy. It turns the advisor-client relationship into an adversarial one. This is not a theory of benevolence for financial advisors, and it's no way to run a practice.

Sadly, many advisors sense this and, like the author of "The Ethics Dilemma," turn to a sort of amoral existence. The end-result is the idea that it's moral to put others first, but impractical to actually do so. "Putting your clients first is impossible in practice," we're told. What does this mean in practice? It means that, according to the CFP Board of Standards, we try to "achieve a proper balance of conflicting interests."

Now, think about what this means for a moment. If you were the client, would you want to work with an advisor who proudly proclaims that, "my ethics aren't absolute," and that his solution is to simply, "achieve a proper balance of conflicting interests"? No way. You would run like hell from this advisor. You couldn't trust him and you shouldn't. His confession of a flexible moral code is a confession of dishonesty, and his so-called solution is to balance that dishonesty with moments of alleged honesty. It's alleged honesty because you can never know beforehand when he will cheat you and when he won't.

What about advisors who don't want to be dishonest? Who don't really want to be morally flexible? What does the balancing act between altruism and amoralism do to a financial advisor who just wants to be a good person? It does what you would expect: It makes him feel guilty for his very existence, and there is no shortage of evidence for this. In every major industry organization, there are plentiful examples of advisors who are proud to "give back" to their community.

For one of those examples, in the December 2012 issue of The Register, registered financial consultant Mark Kanakaris was interviewed and asked how financial advisors could "give back" to their community. Rather than question the premise of "giving back," the ethics of altruism come shining through. Kanakaris responded, "Get involved! I am an active member of two local volunteer civic groups. One assists our seniors and the other raises funds for community improvements for youth. I am a leader of my church financial committee and I volunteer at a food pantry for the area needy."
Echoing The Register, AdvisorOne profiled Nelson Ball in its December 20th (2012) article, claiming that Ball, "really, really gives back." Ball proudly proclaims that he wants to continue working for as long as he can so that he can, "work and give away a large part of what I make."

By and large, advisors join religious organizations, community organizations, volunteer at homeless shelters, and find a multitude of ways to "do good." Why? Because their profession isn't good. According to the altruist morality, these advisors haven't earned their money. They are morally unworthy.

Don't confuse benevolently helping others with what is going on here. The issue here isn't about being helpful or kind to our fellow man. The issue is the idea of "giving back." Back to whom? You only need to "give back" something that you didn't earn and never had a moral right to in the first place.

What about the "feel good" aspect of being altruistic? Many advisors don't feel that they are burdened with guilt (at least, not explicitly). Instead, they say that "giving back" makes them feel good and that, in turn, is what perpetuates further giving. This giving allegedly makes them a good person. But feeling good is not how a rational person chooses moral actions. Feelings are not the basis of morality — they will not and cannot determine what is "good" and "evil." A cannibal may feel good after having a meal, but no rational person would use this as a guide to moral perfection.

The author of "The Ethics Dilemma" is admitting that his moral code is not absolute, which means he cannot rely on it to guide his actions consistently. This, in turn, means he can't be consistent, which means his code of ethics is broken. If you agree with him, then you share the same fate that he does: a contradictory existence. What, then, is the alternative?

The virtue of selfishness: How Ayn Rand's ideas can save the financial planning industry

There is one truth in the amoral argument, and it is this: "no human being is truly capable of doing this [putting the client's interests ahead of the advisor's]." The financial planning industry needs to fuse together the moral-practical dichotomy into a consistent, whole, voluntary, ethical code of conduct based on rational selfishness. Where can the industry learn this new moral code? Where can you learn this new moral code? From Ayn Rand.

Whether you pick up Rand's epic novel Atlas Shrugged, or whether you delve into her intellectually intense non-fiction works like The Virtue of Selfishness, one thing is clear: Rand demonstrates that your interests do not have to clash with your clients'. In fact, there is no conflict of interest among rational individuals.

No, selfishness does not mean profiting at your client's expense. It means "concern with one’s own interests." It does mean putting your own interests first, but those interests do not clash with your client's — not if your client is a valuable part of your business. It means you must assert your moral right to exist, just as your client has a moral right to exist. It means you should be the beneficiary of your own actions, just as your client should be the beneficiary of his. It means that, in every business deal, you are engaging clients who are your moral equals.
Don't let your altruistic peers point to Bernie Madoff as an example of selfishness. Bernie Madoff knew and understood that what he was doing was not in his own best interest. In fact, his words paint a clear portrait of a broken and tortured soul:
    "I am actually grateful for this first opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed. As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal... I am painfully aware that I have deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money. I cannot adequately express how sorry I am for what I have done."
On the two-year anniversary of Madoff's confession, his son Mark — devastated by the news media's ongoing coverage of his father's Ponzi scheme — hanged himself in his SoHo apartment. Madoff's life is ruined, his family permanently destroyed, his business and personal relationships have been reduced to ashes. That's not selfishness. It's self-destruction. It's actually the natural end-result of being self-sacrificial. It's a variant of altruism, not of selfishness.

Choose to align your interests with your clients, not against them. Choose mutually beneficial trade. Choose selfishness.

How the financial planning industry can reorient its moral compass

Professional organizations and educational institutions must be willing to accept, teach and promote Ayn Rand's ideas of rational selfishness. Specifically, industry organizations must teach financial advisors how to pursue their own rational best interests and not be driven by whim or emotional attachments to unnamed and undigested ideas. Likewise, we're not cannibals, and we shouldn't flagellate ourselves for pursuing our own best interests.

Educational institutions should teach advisors how to align clients' interests with advisors', not make one side subordinate to the other. They must not promote altruism, or even the pretense of it. Yes, it's a radical shift from how the industry operates now, but nothing short of a radical moral revolution will save the financial planning industry from endless in-fighting, crushing regulations, frivolous lawsuits and constant power struggles.

Every year, every day, the Securities and Exchange Commission, the FINRA, and every state insurance commissioner's office grows stronger. They grow stronger because we, as an industry, sanction it. We sacrifice what remains of our autonomy to the state and federal governments.

We point fingers at fellow advisors who sell commission-based products. We fight over which industry organization should have dictatorial power and control over the industry. Every once in a while, an article like "The Ethics Dilemma" bubbles to the surface, reminding the industry and regulators that financial advisors cannot be trusted. That they are inherently dangerous to clients. That personal gain must be tamed. That the lure of profits will create conflicts of interest that must be "managed."

Until the industry stands up and proclaims its right to exist without any government interference or regulation, until advisors learn to be truly proud of their profession and throw off the pretense of altruism, we will continue down our own road to moral and political serfdom. We can turn back the tide. The question is: Will we wake up and do it before it's too late?
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