Views on improving the integrity of global capital markets
04 December 2012

The Fearless Fiduciary: A Sad Narrative — Rampant Mis-Selling of Financial Products

One of the perpetual ethics issues facing the finance industry is the general theme of mis-selling of financial products. CFA Institute has been tracking the issue in annual polls and commenting on possible fixes for years. The sad truth is many financial professionals may not even know they are doing it. This is your year-end reminder to tune up your act.

Mis-selling has a lot of nuance. To be frank, in whatever context the practice arises, it violates the duty of prudence, client loyalty, and care common in the typical higher “fiduciary” relationship. Even more disconcerting is that mis-selling often takes place in relationships involving the lesser duty of care known as “suitability.” This means that financial sales people are supposed to only sell you products they understand and that are generally suitable to your experience, financial situation, and risk tolerances. But financial salesmen the world over are peddling inappropriate financial goods and products to an unsuspecting, often uninformed, consumer. 

The sad reality is those financial goods often miss the suitability mark, and the salesperson — the one with supposed knowledge of the financial product — is frequently stumped by the complexity and novelty of what is being sold. The result is a constant infringement by our industry on honest practice and what looks like a calculated and systematic fleecing of the retail customer.

In our recently-released 2013 Global Market Sentiment Survey, CFA Institute members are asked to pick the most serious ethical issue facing their local market. Choices include market fraud, financial reporting fraud, insider trading, and other blights to trust and confidence in the financial services industry. For three years running, mis-selling by various financial advisers tops the list as the most serious ethical breech, and by a wide margin. Unfortunately, the 2013 results are not expected to show improvement on this mis-selling saga. They represent yet another harbinger for the state of industry ethics.

We can and must do better. We encourage you to review your practices today and ensure, from top to bottom, that the customers you serve are being presented with the products and services that best meet their individual circumstances and needs. Be fearless, and upgrade your efforts to both fully understand and disclose the pertinent details of your product line today. Restoring trust in this business all starts with you.

About the Author(s)
Kurt Schacht, JD, CFA

Kurt Schacht, JD, CFA, is the Senior Head, Advocacy Advisor, Capital Markets Policy at CFA Institute, where he oversees advocacy efforts and the development, maintenance, and promotion of the highest ethical standards of practice for the global investment management industry.

1 thought on “The Fearless Fiduciary: A Sad Narrative — Rampant Mis-Selling of Financial Products”

  1. This article has to be viewed as part of the issues facing financial professionals day in and out; about their fiduciary responsibility towards their client needs. Especially, when you’re selling them the financial products that won’t be good for their benefits of reaching their goals. And at the same time, the clients should always have a second opinion before they dable into any financial products with their advisers.I really think having second opinion, would really put the clients in a better position of having somebody else checking on their advisers if he’s serving them right. And also, there should be disciplinary action on those that sell financial products to any client that doesn’t suit their objective goal in any means.

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