ETHICAL AND UNETHICAL ISSUES IN THE FINANCIAL SERVICES

ETHICAL ISSUES IN THE FINANCIAL  SERVICES

Ethical issues in the financial and marketing services industry affect everyone, because even if you don’t work in the field, you’re a consumer of the services

Common Ethical Issues in the financial

• Unethical Leadership.
• Toxic Workplace Culture.
• Discrimination and Harassment.
• Unrealistic and Conflicting Goals.

WHAT IS ETHICS IN FINANCE  ?

The ethics in finance incorporate truthfulness, integrity, honesty, justice, and fairness in all sorts of financial activities

Financial ethics or business ethics are actually subsets of general ethics. It is crucial for maintaining harmony and stability in financial services

 where people interact with one another and do any sort of financial or monetary transactions.To understand it more properly, let us dive deep into both the terms separately

1) Self-interest sometimes morphs into greed and selfishness

 which is unchecked self-interest at the expense of someone else. This greed becomes a kind of accumulation fever. 

nance department—not from selling products, not from doing what the company did, not from fulfilling the company’s mission, but from playing around with its asset mix,

2) Some people suffer from stunted moral development

“I think this happens in three areas: the failure to be taught, the failure to look beyond one’s own perspective, and the lack of proper mentoring,

3) Some people equate moral behavior with legal behavior, 

disregarding the fact that even though an action may not be illegal, it still may not be moral. “You ought to remember that the reason for all laws is that the moral agreement begins to break down, and the way to get other people in line is to legislate so that we can stipulate punishments, Yet some people contend that the only requirement is to obey the law. They tend to ignore the spirit of the law in only following the letter of the law.

4) Professional duty can conflict with company demands.

 For example, a faulty reward system can induce unethical behavior. “A purely self-interested agent would choose that course of action which contains the highest returns to himself or herself,

5) Individual responsibility can wither under the demands of the client.

 Sometimes the push to act unethically comes from the client. How many people expect their accountants to pad their expenses where possible? How many clients expect their insurance agents to falsify their applications or claims? “That’s the temptation—you like your client, you’ve gotten to know your client, you really want to help your client out—that’s just another conflicting loyalty,

Ethical Issues in International finance Marketing

There is a relationship between the culture of a country and the perceived ethical perceptions of the citizens of that country. Due to the globaligation of markets and hence the marketing practices, the marketers have to deal with the ethical issues arising in the cross cultural scenarios. In this cross cultural environment , the
marketer may have to choose between an entirely different set of ethical norms and values.

 A marketer may not wish to leave her own ethical values and adopt cross-cultural values and this may pose an ethical dilemma. A practice that is generally accepted as being right in one country may be completely unacceptable in another. The situation gets more complex due to the lack of clearly defined ethical standards and codes of conduct. Major ethical problems in international marketing are as follows:

• small or large scale bribery 
• Bribery is mostly considered to be an unethical practice. However, in some countries, it may be acceptable to get some work done or speed up the process.
• Gifts/Favors/Entertainment  
• These include items like gifts, personal travels, etc. which may be intended to get some job done. However, it may be considered just as a gift in some cultures, it may also be considered as being a source of influence in other cultures.
  
• Pricing 
•  The ethical issues regarding this include unfair price differentials, pricing to eliminate local competition by selling products at prices that are well below those in the home country, or adopting pricing practices that are illegal in the home country but are legal in the host country like price-fixing arrangements and forming cartels.
• Products/Technology 
• This may involve the ethical issue of selling the product/service which is banned in the home country but not in the host country or which is inappropriate or unsuitable for people in the host country to use.
• Questionable commissions to Channel partners 
•  This may include unethical practices like paying unreasonably high commissions to channel partners like dealers, distributors, sales personnel, etc. to carry the products of this firm and restricting the products of competing firms.
• Involvement in political affairs 
•  This includes the issues of exertion of political influence by multinationals, or indulging in marketing practices in countries that are at war with the home country.
• Cultural differences 
•  There may be potential misunderstandings as some practices may be considered as right in one culture and immoral or even illegal in another.

concluded the presentation with several suggestionsfor improvements in the industry to encourage more ethical behavior. “ experience [in the financial services industry] is that people who do business are, for the most part, highly ethical people trying to do the right thing most of the time. Most of them are trying to help their clients achieve their financial objectives,” he said. “But how could this be better, because clearly, even if I’m right, there are still a lot of issues and problems in the business?”

First of all, consumers need to be better informed. “It is your responsibility to take control of your own financial security,” which doesn’t mean you need to know everything about the product you are buying in advance, but “you should read enough to know what some of the right questions are to ask.” Ask those insightful questions of an advisor whom you know, trust, and who has the proper credentials, if applicable.

UNETHICAL ISSUES IN THE FINANCIAL  SERVICES

1) Irresponsible financiers. Misleading borrowers of funds.

• 2) Embezzlement. Embezzlement.
• 3) Moneyism. Unethical insurance practices. 
• 4) Bank failure. Economic crime.
• 5) Financing.
• 6) Barksdale, Byron L: Investment Broker Malpractice.
• 7) Commerce → Agencies, dealers.
• 8) C: Cross-sectoral problems.
  

There is no financial product that can guarantee performance and/or returns. But industry emphasizes these aspects more than what the client needs. As the approach is to sell (or mis-sell ) and not advise. Following are the types of unethical practices everyone must know of:

1.NON – DISCLOSURES

non-disclosure of invisible risks and expenses is one of the most common unethical practices . Firstly, the adjustment of the management fee and distribution expenses within the product’s performance is strangely one of the most unethical norms that industry has been following for many years. Secondly, when there are no financial products that can guarantee performance, still at times products are mis-sold just by emphasizing on return related assurances, quoting historical performance and not explicitly revealing the factors that may be out of control and may pose a significant risk to the foreseeable performance being claimed.

2.BASING RELATIONSHIP OVER ADVISORY

Most advisers are basically relationship managers. Instead of understanding investors’ perspective,

most advisers focus on the selling products. It also includes a lack of necessary knowledge, certifications, financial skills and being un-responsive in their dealing. This form of unethical practices/ conduct is also associated with a failure to effectively undertake the assessment of the client’s tolerance to risk. Then utilize that assessment appropriately, or to match financial product recommendations to the client’s specific objectives.

3.INTEGRITY RELATED ISSUES

This includes unethical conduct associated with misleading statements about the performance, features, and risks of recommended financial products, or misleading statements about the business reputations of those associated with financial products or managed investment schemes. 

Misleading conduct is also linked to an inadequate understanding of the financial product. This unethical conduct also includes the failure to conduct appropriate and independent research into the financial product being recommended.

4.COMMISSION PASS – BACKS

This is another one of the most evident and unethical practice. According to the investors’ perspective, getting trapped in this unethical practice is nothing but being “penny wise and pound foolish”. Saving a one-time expense is not what creates wealth. But the right decisions and right discipline in long term does. In the hands of such product sellers, one can never get the right advice. Advisory is a very ethical profession and not a bargain.