As a registered representative of a broker-dealer, what are your obligations to your clients? To your employer? Have you thought through the ethical issues that are part of the securities business? If you have, would you be able to organize them into a coherent code of behavior?

The term “ethics” comes from the Greek word ethos, meaning the character and sentiment of the community. Ethical behavior implies conformity to some standard of community conduct that issues directly from a moral sense of what is right and what is wrong. Conformity to ethical standards is far different than conformity to law, as codified in statute or regulation. One can act unethically- that is, not in conformance with community standards of correct conduct-yet neither violate any law nor run afoul of any regulation. Ethical behavior has been described as doing the right thing even when no one is looking.

While ethical standards may ultimately form the basis of law and regulation, not all ethical standards find their way into these more formal expressions. For example, if you came upon an automobile accident in which a person was severely injured, only in some states are you required to render first aid or even call an ambulance. Ethically, however, the sense of the community is that you act to assist the accident victim. Investment professionals learn from the very beginning that their duties are regulated by a body of law; likewise, they owe their clients and their colleagues a standard of behavior, care, and professionalism that often goes beyond the printed rule book.

This module examines the issue of proper and ethical behavior in the securities industry. It begins with a short history of industry practices, and explains how the departure of these practices from standards of ethical behavior led to a body of regulations and industry rules according to which broker-dealers and their employees must now conform. The module goes beyond the written rules to consider standards of ethical behavior developed by various professional groups within the financial services industry. Many of those standards apply to the registered representatives of broker-dealers. The module continues with principles of conduct that will guide the investment professional through some of the more thorny ethical thickets they confront today. Finally, the module ties ethical considerations with the asset management process.

Author: Jennifer Coombs

Jennifer Coombs is an associate professor at the College for Financial Planning. Prior to joining the College, Jennifer spent a decade working in the financial services industry in New York City, with a special focus on equity research and analysis. She holds a Bachelor of Science degree in Finance and Political Science from Clarkson University. You can contact Jennifer at jennifer.coombs@cffp.edu.

Complexity Level: Advanced