Wealth Consultancy and Management is the science of bullet proofing the finances of a client keeping a 360o view of their short, medium and long term needs and goals. On the other hand, financial advisory is more related to advice catering to market investments to the client. However, both the relations are fiduciary in nature; this means that a bond of trust binds the professional to their client.
It is not a secret that all fiduciary relationships must be compliant and be accompanied by the highest ethical standards. Wealth consultants charge a fixed fee for their services which is linked to the clients financial well-being. Hence, the possibility of conflicts of interest with the client are low in comparison to that of a financial advisor.
However, due to the earnings based on commissions for financial advisors, many ignore the importance of ethics in their role towards their client and sell products that generate higher commissions only. This is mostly observed in banks or from brokerage agents.
The image below tells the analogy in between ethics and compliance:
It is evident, that ethics are principles which are optional to follow, while compliance are laws mandatory to follow.
So, why must finance professionals follow ethics if it means lower short term earnings?
Listed below are some reasons:
- Maintain long term relations with the clients. Clients leaving quickly is sign of unsatisfactory service provision.
- Win the clients loyalty! The longer and stable the relation with the client, the more the client will contribute towards any service provider’s earnings.
- Clients come for advice that suits them rather than commission generation for somebody else. If clients do not benefit, they will terminate the relationship soon.
- Good ethics input references from clients. Referrals and recommendations help generate business more easily that cold calling at the least.
- It keeps the client mentally satisfied with the services. After all, this is a service based industry.
So this brings us to the question what ethics must be followed and how? The answer to the values below should be YES to be following the ethical standards:
- Being OPEN: “Is everyone whom your action or decision affects fully aware of it, or will they be made aware of it?”
- Being Honest: Does it comply with applicable law or regulation?
- Being Transparent: Is it clear to all parties involved what is happening or will happen?
- Being Fair: Is the transaction or decision fair to everyone involved
in it or affected by it?
An often quoted test is whether you would be happy to appear in the media ‘in connection with’, or ‘in justification of’, the transaction or decisions you made for your clients?
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