If providers of financial services fail to abide by the ethics of their profession and act in their clients’ interests, everyone loses, including Africa’s markets, says Okey Umeano
This article was first published in the October 2019 Africa edition of Accounting and Business magazine.
Consider the following fictional tale. An adviser at an investment management firm recommends the firm take a significant holding in a large retailer. Then the retailer hits rough waters. It is expected to post a large annual loss, which is likely to cause a fall in the stock price. As interest in the stock evaporates, the adviser starts to lose sleep over his position.
Then one morning the phone rings. A client wants to invest her retirement benefits, a considerable sum amassed from 35 years of hard work. The adviser recommends the retailer’s stock and the client instructs him to buy it for her account. So he moves the stock holding from the firm’s account to the client’s.
A month later, the retailer releases its results, which are worse than expected. The stock price declines by 60% and poof – the client loses the bulk of her retirement fund in one fell swoop. She accuses the adviser of misleading her, closes her account at his firm and goes on social media to warn others, advising them not to trust financial services firms. Inevitably, the news spreads and several other investors close their accounts at the firm. Not only are the client’s hard-earned funds lost forever but the firm’s reputation is in tatters.
Though fictional, this sort of scenario does happen. Such unethical behaviour leads to distrust, not only of the perpetrator, but of financial services providers in general. Regulators also come in for criticism for not protecting investors. Unethical behaviour taints financial markets and everyone loses.
Financial services such as banking and financial advisory are based on trust. As such, asset owners must be able to trust that their assets are safe and that the advice they are getting is genuine. Providers of financial services owe their clients a fiduciary duty, and should act in their interests.
In the same way, accountants must abide by the ethics of their profession, putting the client’s interests ahead of their own and acting fairly in their dealings with client assets. Asset managers should neither favour proprietary portfolios over those of clients, nor some clients over others. Only by doing this can the integrity of the financial markets be maintained.
If Africa’s financial markets are to grow to the heights of which we dream, doing the right thing must become the rule. Lessons must be learned from the mistakes of developed markets, such as the US sub-prime mortgage crisis. Unethical behaviour must be called out and appropriate punishments meted out as a deterrent.
At the same time, ethics must be elevated in the training curricula of all financial services professionals. ACCA is leading the way and has embedded ethics into its curriculum. It also has procedures to sanction members who transgress. Financial services firms should take a cue. That little extra profit made, or loss averted, on the firm’s proprietary account could sink the individual, the firm and the market as a whole – not to mention ruin the life of the client, which simply isn’t right.
Okey Umeano FCCA is head of risk management at Nigeria’s Securities and Exchange Commission.
"If Africa’s financial markets are to grow to the heights of which we dream, doing the right thing must become the rule"