Sales Ethics 2

1. Do not gurantee performance, risk or returns
2. Do not dissuss more than one product in one meeting unless the product is a complemetn to the main product in discussion such as a short put to hedge a long stock position
3. All fees must be disclosed, this include what the fees are use for and 3rd party fees
4. An after tax performance report should be given
5. RM should consider tax when investing for the client
6. If advance technical models are use, RM do not need to explain in details but RM should use what if senerio, such as what happen if Interest rise to 5%, what happen if inflation drop to 1% etc, to give client a rough idea of the extreme values that can be expected. Extreme value must include down side value
7. RM should be constantly updated with related happenings
8. For investment of less than 25,000 RM should be at least a CFP.
9. For investment of 25k to 50k, RM should be at least pass CFA level one exam, CAIA level one, FRM level one, APRM or CHFC
10. For investment 50k to 100k, RM should be at least pass CFA level 2 exam, CAIA level 2 and be a certified FRM or PRM
11. For investment 100 to 250k, RM should at least pass CFA level 3 exam, be a CAIA chartered, or be a FRM charter holder
12. For investment 250k and above, RM must hold at least 2 of the qualification, CFA charter, FRM charter, CAIA charter, PRM
13. In event RM is unable to meet the qualification requirement, a qulified person must approve the sales and portfolio.

Now as an RM, you may ask how am i going to achive my sales target if i need to obey such tough rules? The ans is simple, those are not rules, those are basic ethics. If you have been acting unethically in the past it is time to change now.

The management can do their part by encouaring and rewarding for ethical behavior, and to reward for risk management. It is easy to reward for return because it is easily calculated but rewarding for risk is difficult because there are too many way of calculating risk, even risk adjusted performance have an entire universe of ways to calculate.

One way may be to increase base pay to reduce RM reliance on commission, but this is agued that their effort would reduce. But do recall it is sales pressure that lead to RM to resort to tatics that is unethical to many.

Even with the rules RM can get around with it. Yes. After words if you are unethical at heart no amount of law is going to prevent you from being unethical. Law serve as a guide, it is the heart of the RM that determines if clients get the best from him/her. Product and ethical training are important too.

Remember the world changes and laws must change, and investment products get more complex, the above laws is unlikely to cover even half of what is needed to protect the consumers, so it is not about the law, it is about the banks and thier staff. And you the client, yes do your homework, ask questions, think carefully, the money is yours not the RM

I am still writting on the final part of the financial crisis article. This final part include some facts that many may not think about or think about but just don't dare to say it. It would be out in a few days. Estimated before friday.