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In actual fact it is a warning against myself. We have a tendency as human beings to forget our own responsibilities when we deal with people who are trying their best to be honourable and upright. When things then go wrong, we forget that we also had responsibilities. Let me explain:

Some years ago when I still had a financial practice, I was looking after a client’s portfolio. The markets had treated us kindly and our diversification strategy had panned out well. As is normally the case in a bull (climbing) market, the more aggressive portion of the portfolio performed exceptionally well and my client was pleased.

The next thing I received was a phone call, instructing me to switch a larger portion of the portfolio into this part of the portfolio. This was not an ethical issue; it was a clear instruction by the client. Something just did not sit right with me, but I could not place my finger on it. It was not the market – who knows how long a bull market will run? It was not the structure of the portfolio – all was running smoothly at the time. Why – and more importantly, based on what – would I say “No” to the client?

At that moment the penny dropped. “I will gladly perform your instructions, but you will have to sign acceptance that you are changing your risk tolerance from ‘conservative’ to ‘high risk’, because what you want me to do will put you in a high risk position”, I advised him. It was a mere technicality and much more of a compliance issue really. The client said he would come back to me, which he did two days later. He retracted his instructions.

The market corrected a while later and we barely missed a potentially devastating impact on his portfolio.

Did I act ethically in refusing his request initially? Would I have acted unethically if I had performed the client’s instructions? Neither. Operating ethically – even with the utmost integrity – (see the previous article in this series if you do not understand the difference) would not have had the slightest influence on the market’s movements. No amount of integrity, ethics or even character would have changed the market’s antics.

The issue was one of basics: the client wanted to pursue a course of action which was not advisable given his risk assessment. He had the right to change that, of course. Even as it were, he still had a portion of his portfolio exposed to higher market volatility where we had to bear the brunt of a correcting market. My ethical approach did not help me foresee the future – it only helped me to do what I did, in an ethical manner.

As client and as financial planner we should understand the implications – and very definitely the limitations – of ethics in a business arrangement. It will never take the place or supersede the basic tennets of a business decision. And when that decision turns out to be the wrong one, it does not automatically reflect unethical conduct by the other party.

Sanlam Life Insurance is a licensed financial service provider.
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