There is no financial product that can guarantee performance and/or returns. But industry emphasizes these aspects more than what the client needs. As the approach is to sell (or mis-sell ) and not advise. Following are the types of unethical practices everyone must know of:
1.NON – DISCLOSURES
Non-disclosure of invisible risks and expenses is one of the most common unethical practices . Firstly, the adjustment of the management fee and distribution expenses within the product’s performance is strangely one of the most unethical norms that industry has been following for many years. Secondly, when there are no financial products that can guarantee performance, still at times products are mis-sold just by emphasizing on return related assurances, quoting historical performance and not explicitly revealing the factors that may be out of control and may pose a significant risk to the foreseeable performance being claimed.
2.BASING RELATIONSHIP OVER ADVISORY
Most advisers are basically relationship managers. Instead of understanding investors’ perspective, most advisers focus on the selling products. It also includes a lack of necessary knowledge, certifications, financial skills and being un-responsive in their dealing. This form of unethical practices/ conduct is also associated with a failure to effectively undertake the assessment of the client’s tolerance to risk. Then utilize that assessment appropriately, or to match financial product recommendations to the client’s specific objectives.
3.INTEGRITY RELATED ISSUES
This includes unethical conduct associated with misleading statements about the performance, features, and risks of recommended financial products, or misleading statements about the business reputations of those associated with financial products or managed investment schemes. Misleading conduct is also linked to an inadequate understanding of the financial product. This unethical conduct also includes the failure to conduct appropriate and independent research into the financial product being recommended.
4.COMMISSION PASS – BACKS
This is another one of the most evident and unethical practice. According to the investors’ perspective, getting trapped in this unethical practice is nothing but being “penny wise and pound foolish”. Saving a one-time expense is not what creates wealth. But the right decisions and right discipline in long term does. In the hands of such product sellers, one can never get the right advice. Advisory is a very ethical profession and not a bargain.
Disclaimer: Investments are subject to market risk. This write up is issued by PMS-AIF and is produced for information purposes only. Information and opinion contained in this document are published only for the assistance of the recipient. It is neither a solicitation to sell nor shall it form the basis. Or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advice.
