Navigating the Moral Landscape of Finance

Micah Shilanski, CFP® discovers how he balances client preferences with ethical standards in the ever-evolving world of finance

4.2 min read

In an environment where trends seem to shift with the tides, your principle beliefs and the core values of your practice should remain steady – that means not being afraid to align client preferences with your morals.

The Dilemma of Client Preferences

Client preferences vary widely, from risk tolerance to investment preferences. However, when a client’s desires clash with your practice’s values, a dilemma is created. How do you reconcile the need to satisfy client demands with the ethical standards you hold dear?

The Case of Mr. Bob: A Moral Conundrum

As a financial advisor, I’ve seen my fair share of interesting requests from clients. But there’s one story that always comes to mind when I think about staying true to my values in this industry.
It all started with a call from a prospective client; let’s call him Bob. He was eager to discuss his investment goals. As he talked more about his objectives, one request stood out like a sore thumb: Bob wanted to dive headfirst into cryptocurrency.

Now, I’ll admit cryptocurrency has always been a bit of a gray area for me. On one hand, it’s undeniably intriguing – the potential for sky-high returns and groundbreaking innovation is hard to ignore. But on the other hand, it’s a Wild West of speculation, with risks that can’t be ignored.
So, when Bob broached the topic of cryptocurrency, I found myself in a bit of a moral dilemma. On one hand, I wanted to accommodate his wishes and provide the best possible service. But on the other hand, I couldn’t shake the feeling that endorsing cryptocurrency went against the values of my firm and my own.

Without much deliberation, I decided I would not recommend cryptocurrency to Mr. Bob. It was an easy choice – I knew it might cost me a client – but I couldn’t in good conscience endorse something I didn’t truly believe in. I’m a person that firmly stands on my moral ground.

Instead, I explained my reservations to Mr. Bob with honesty and transparency. I laid out the risks and uncertainties associated with cryptocurrency, making it clear that my primary concern was protecting his financial well-being. If he wanted to, he could invest, but not through me and not with the money needed in the financial plan that I’ve built for him.

To my surprise, Bob was understanding. While he was initially disappointed, he respected my decision and appreciated my candor. Usually, clients want to deliberate things and give you a hard time when they set their minds on something.

How did Mr. Bob get everything that he wanted?

Easy. I proposed a solution: play money accounts. These accounts would serve as a sandbox of sorts, allowing clients to experiment with investments without putting their financial plan and future overall at risk. Excited by the prospect, Bob eagerly agreed to give it a try.
So, we set up the account and Bob was free to invest by himself.

One key rule we established was that play money had to be just that—play money. It couldn’t exceed a certain percentage of Bob’s overall portfolio and couldn’t impact his long-term financial plan. This ensured that his financial security would remain intact even if Bob’s play money investments went south.

Long-term Strategy vs. Daily Trading

Clients are bombarded with advice on investing in new things every day. All the large news publications run stories on the next big fund to invest in constantly, making people think that they are missing out on a huge opportunity if they don’t invest and trade on a regular – or practically a daily – basis. That’s because Wall Street makes money on trading, no matter the end result. Contrary to popular belief, the success of Wall Street traders is not tied to investors’ success. They are rewarded for each trade you make, regardless of whether it ends up going up or down. So they will make money as long as you keep trading, even if all that trading doesn’t bring you money. That’s why we tell clients that they need to think about the long term and only trade if it makes sense, not just because a specific investment is advertised as hot at a given moment. This means that if we believe an investment is worth holding and will pay off at a later point, we will advise you to hold it and wait for many years if necessary because we are here to ensure your long-term financial success, not helping Wall Street guys make more money by trading every single day, without it actually benefiting you.

Upholding Ethical Standards in Client Relationships

In financial advisory, upholding ethical standards is not just a professional obligation but a moral imperative. Clients trust us with their financial well-being, and it’s our responsibility to ensure that their interests are safeguarded at all times. This entails not only providing sound financial advice but also aligning your actions with the values that define your practice. When client preferences diverge from these core values, advisors often find themselves facing a moral dilemma. However, compromising on our values is not an option. Integrity is the bedrock of any successful advisory firm, and maintaining the trust and confidence of our clients hangs on our commitment to ethical conduct. 

Communicating with Transparency and Clarity

In your conversation with your clients, transparency is key. You explain your reservations about cryptocurrency, citing its inherent risks and speculative nature. By communicating openly and honestly, you demonstrate your commitment to acting in your client’s best interests.

Standing Firm in Your Convictions

Over the years, I’ve come to the realization that not every client is right for you, and vice-versa. There are certain standards, beliefs, and convictions that I hold dear and incorporate into my practice. I’d like to keep standing by those convictions in my dealings with clients, as well. It’s only natural that sometimes, a clash between my convictions and those of a client or a prospective client may occur, and this is where you have to stay true to yourself, draw a line, and end the relationship. For instance, I don’t trade in ESG because these things go against my convictions, and I share that with clients. We have these filters in our models, and if a client doesn’t want to accept those filters, then we just go our separate ways, as I don’t want to abandon the core values that I believe in under any circumstances.

The Decision and Its Consequences

Trust your convictions and values. Never let the pursuit of profit lead you away from focusing on the heartbeats you impact and have the potential to impact.