The ethical challenge of financial planning

Mohamed Jaffer | 2013

I was thrilled to learn at the 2013 Financial Planning Institute Annual Conference of initiatives to further strengthen regulation of the financial planning industry. The FPI is calling for a compulsory one- or two-year period of articles for a financial planning graduate, as is the case for chartered accountants and attorneys.

This will only do our industry good and will further enhance our professional image.

The additional requirement is welcome given the reputational damage we sustain due to poor service by some service providers of the industry. In this sense financial planners are their own worst enemies.
On reviewing a client’s portfolio following a referral I was horrified to discover how incompetently the portfolio was structured. It evoked shame and disgust in me and I had difficulty reconciling myself with the same category of service provider tasked with the responsibility of enhancing the financial well being of a client.

The client is a medical doctor, Dr A, married and with children. Judging from Dr A’s portfolio neither thought nor planning was invested in the selection of financial products therein. Indeed, it is evident that the broker’s sole motive was personal gain in the form of commissions. The portfolio reflected little regard for the financial future of the client or any evidence that the broker took care in working with someone’s hard-earned money.

This is what Dr A’s portfolio looked like:

1. Three retirement annuities, each starting exactly two years apart.
2. Risk cover was changed five times, again every two years.
3. He had three endowments with the one being invested in the smooth bonus portfolio and the other two in the money market. This was never changed since inception and each endowment is two years apart.
4. He had a large sum of money invested in a LISP platform, but again in the money market for the last 10 years.

The two-year break between policies was clearly for commission. The churning of risk cover every second year indicates a product sale for a fresh round of commission. The sale of the investment vehicles shows that the broker had no clue of what he was doing. Dr A’s interests were clearly not the priority of the broker.
As professional financial planners we are responsible for the financial health of our clients in much the same way that a medical doctor is responsible for his patients’ physical health.

It is imperative that professionals in our industry who have integrity, blow the whistle on and campaign against this kind of misconduct. Many of us know who these charlatans and opportunists are. The FSB, through the agency of the FPI, should be petitioned to set a precedent with a view to name and shame the miscreants.
As long as this type of behaviour continues we will be saddled with the stigma attached to our industry.

Whilst we should acknowledge that FAIS is contributing significantly to restoring good ethics to the profession, it remains, nevertheless, a matter of concern for all financial planners committed to good ethics that legislation is the only guarantee that we always place the interests our clients above that of our own.