Chapter 1 — Introduction to Ethics

• The Golden Rule is the foundation of ethics for the financial services practitioner
• Society’s limited goods and unlimited burdens make an ethical system essential
• Two fundamental methods of dispute resolution exist: force and reason
• Force destroys relationships — reason, guided by the Golden Rule, is the only viable approach
• Ethics provides optimum standards of conduct; compliance provides minimum requirements
• Ethics applies to sales tools, practices, communications, client interactions, and company relationships
• Three components define a profession: specialized knowledge, service-before-income outlook, and a code of ethics
• Professional status is essential to the survival of the agency distribution system

Ethics is a system or code of principles that directs our actions towards others. The foundational ethical standard that applies to the financial services practitioner is the same that serves as the building block of the world’s great religions: the Golden Rule — treat others as you would wish to be treated.

It is the fact that we don’t exist alone — and that goods exist in limited supply while burdens seem unlimited — that makes an ethical system essential. Limited goods must be distributed and burdens shared, meaning disagreements will arise. There are two fundamental means of dispute resolution: through force and through reason.

Force may carry the day momentarily, but at the cost of destroying any possibility of an enduring relationship. Reason, guided by the Golden Rule, is the most rational and palatable approach. The Golden Rule is the most rational method of dispute resolution and the very core of fairness and professionalism.

Although compliance certainly has its basis in ethics, it is not the same thing. There is a critical distinction:

• Ethics provides optimum standards of conduct — what we ought to do.
• Compliance provides minimum requirements of conduct — what we must do.

The person who acts ethically does the right thing. The person who is merely compliant stays out of the courtroom. Ethical or professional conduct beyond what is required by law is optional with the individual. Compliance is a legal requirement.

Ethics comes into play with respect to:

• The practitioner’s sales tools
• The practitioner’s sales practices
• What the practitioner says or fails to say
• What the practitioner does or fails to do
• The practitioner’s interaction with clients or prospects
• The practitioner’s relationship with his or her company or companies

Three components are necessary for an occupation to be considered a profession:

• Specialized knowledge
• A “service before income” outlook
• A code of professional ethics

The common thread running through the unethical sales practices that have plagued the industry — “private pension” plans, “vanishing premiums,” and others — is that they misled the customer. Each involves an element of deception that stands in direct opposition to professionalism.

The agency system continues to exist because it is the most effective distribution system. However, unless agents become more professional and the public perceives a greater benefit from the practitioner’s participation in the sale, insurers will move to less expensive alternative distribution systems. An ethics-driven profession is essential to the very survival of the agency system.