When you are working with a financial advisor or other fiduciary, you expect them to keep their focus on your company’s needs and your personal and professional goals. But gaps in morality and conflicting interests can cause some advisors to have Swiss cheese consciences. Know what to look for and what to do to protect your company, and yourself.
What Psychology Can Teach About Ethical Decision Making
No one expects a business owner to perform an in-depth psychological analysis of the professionals they work with. But understanding patterns of psychological behavior can help you be better prepared when issues arise. No where is this more true than with dealing with the ethical implications around a fiduciary’s financial and business advice.
Get Help with Leadership, Conflict Resolution, and Business Strategy
Talk to a consultant who can help you make strategic decisions about the future of your business.
From the field of psychology, we get the term “Superego Lacuna”. “Lacuna” (or “Lacunae” for more than one) literally translates to “little lake” and, in the context of psychology, references a small hole in a person’s functioning conscience. Often, these moral lacunae are self-serving exceptions to the person’s larger ethical framework. They may have developed internal explanations for themselves about why specific amoral or immoral acts are justified within a certain context. Essentially, this term means that some people have tiny gaps in their moral fabric, like the holes in Swiss cheese. When that context arises, this misbehavior can slide through the moral lacunae, making otherwise ethical professionals take actions that are decidedly unethical.
What Happens When Your Advisors have Swiss Cheese Consciences
Remember that a fiduciary advisor is a person who holds money or assets for someone else’s benefit within a professional relationship built on trust and confidence. Financial fiduciaries, such as wealth managers, can provide guidance for everything from stock investments to broader strategic guidance for business decisions. Because their fiduciary relationship is built on professionalism and expertise, business owners often make the mistake of trusting an advisor’s recommendations uncritically, without the kind of detailed analysis that may reveal unethical practices or self-serving recommendations.
Unfortunately, due to the demands of corporate structures or a desire to get ahead financially themselves, some financial advisors develop moral lacunae around the services they offer their clients. For example, they may recommend financial services or investment strategies offered by their own companies because they receive a financial benefit from doing so in the form of commissions, bonuses, or other corporate perks. These compensation structures put the financial advisor’s professional security and financial needs in direct conflict with the client’s best interests. To use a cheese analogy, these conflicting interests “ferment” the advisor’s moral “milk”, developing the “Swiss cheese holes” they use to justify acting against their customers’ best interests.
How to Protect Yourself Against a Fiduciary’s Unethical Decisions
No one has a perfect moral compass. Subjectivity, biases, and presumptions can color even the most conscientious person’s advice. But if you are worried that your advisor has a Swiss cheese conscience, there are a few things you can do to protect yourself and your business.
Know the Legal Limits of Fiduciary Duties
Remember that not everyone in a specific industry is required to be a fiduciary. For example, broker-dealers and investment professionals are required to uphold fiduciary duties by the Securities and Exchange Commission (SEC), but other insurance providers or investment strategists may not be held to the same standards. Be sure you understand whether any advisor you work with is legally required to abide by fiduciary duties, so that you can better assess the objectivity of their advice.
Clearly Communicate Personal and Company Goals
One of the fastest ways to build trust is through open communication. If your goal is to obtain unbiased financial advice from your fiduciary advisor, you should clearly define your expectations, and who the fiduciary is working for (you, your board of directors, stakeholders, or the company itself). You should also have a clear picture of what success looks like, so you can more easily identify if the advisor’s recommendations are moving you in the right direction.
Question Self-Serving Recommendations
Often, the Swiss cheese parts of your financial advisor’s advice are motivated by profit, or at least sales. You should have a clear understanding of your fiduciary’s role, and how they are compensated before taking any advice from them. For example, know whether your advisor works exclusively for one company (like an insurance agent), or reviews and recommends plans from a variety of companies (like a broker). Then, if your fiduciary recommends a product or service that they profit from, you will know to ask more questions about how that offering measures up to competitors’ alternatives.
Get Second Opinions
There is an old saying “trust, but verify.” This is especially true if you question whether your fiduciary is giving you morally sound advice. You always have the option to get a second opinion about any financial planning or advice. This can help you identify conflicts in your advisor’s motivations, and make a fully informed decision.
It can be hard to know if you are getting the best advice from any professional, and even harder to know if there are gaps in your financial advisor’s moral framework. But by taking steps to recognize and address potential conflicts of interest, you can reduce the chances you will be “cheesed” by bad or self-serving advice.
David Stanislaw is an organizational development specialist with over 25 years’ experience in creating and communicating company goals and values. Through business consulting and facilitation, David helps businesses identify gaps in their financial advisor’s advice and communicate expectations and goals. Contact us to meet with David and begin prioritizing your company values today.
Recent Comments