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Ethical considerations when selling financial products

Ethical Sales - Ethical considerations when selling financial products

By Harry Maximillian | HarryMaximillian | 31 Dec 2022


On the wall of the sales floor in which I worked as an investment broker hung two posters.

Do

  • Tell the truth
  • Treat your client with respect
  • Stick to the information in the sales document

Don’t

  • Mis-sell
  • Lie
  • Exaggerate
  • Swear

Whilst those well meaning posters were a sign the management team wished to run their business ethically the reality was different.

The reality led to the closure of the business and ultimately unpleasant fines and hefty restitution. That outcome could have been easily avoided.

This article looks at the ethical considerations when selling financial products. These considerations could be the difference between success and failure. More radically, they can be the difference between running a successful business or sharing a cell with a gangbanger!

Regulation and lawyers

Whilst lawyers are my least favorite profession they are integral to ensuring an investment product has the best chance of success. However, let's not overlook one important factor. Courts often ignore the legal advice provided by lawyers to their clients.

One of the most important reasons for obtaining legal advice however is that it shows an intention of doing things properly from the beginning. That is crucial if the product goes into meltdown and investors start pointing figures and uttering the dreaded words ‘scam’ and ‘fraud’.

Before a product is launched it must be bullet proof from a regulatory point of view. An investment that occupies the gray area poses a massive risk to its promoters. One of the biggest risks being that investor’s money will have to be returned and civil and criminal proceedings initiated.

Arguably the most valuable job a lawyer can do when advising on an investment product launch is to write to your local regulator (in the US that’s the SEC) and ask them on a no names basis whether they believe the planned product represents a security or a collective investment (i.e. a fund structure).

If the answer comes back as yes then the structure must change or steps taken to regulate it. This advice is meant for everyone, even the guy with an idea and the unwavering will to succeed at any cost. If you plow ahead without regard to regulation your immediate future may be filled with shiny objects but it won’t last. As soon as that subpoena arrives you will wish you had listened.

Making promises you can keep

In the old days when you raised money from the public you had to produce a prospectus. Unlike White Papers which are used to raise money for cryptocurrency projects these documents underwent an intense verification process.

That meant that every line of the document would be verified against supporting documents. If it didn’t stack up then it was removed or reworded. Verification is a costly, time consuming and frustrating process. I can guarantee that of the thousands of white papers issued by crypto projects over the last few years only a handful, and that is being generous, have had their contents verified by lawyers.

Whilst it is an expensive process it is also a valuable one. Verifying statements contained in a sales or offering document ensures that promises are not made that can’t be kept. We all have a tendency to exaggerate. That is dangerous when we are selling investments.

The bottom line here is, verify statements and stick with statements that are accurate and not misleading.

Remember the word ‘misleading’ and the phrase ‘misleading statements’ for you will hear them a lot.

So how does all this translate to selling products ethically?

Firstly avoid selling products that are in a gray area or where lawyers have not been involved in structuring and preparing the offering document.

Secondly, assuming a lawyer has been involved in the process, follow the information in the sales brochure and or script. Don’t ad lib. Many rogue brokers and salespeople are in the habit of closing the meeting room door behind them and blatantly lying to clients. As a sales manager or owner this is fatal. Ensure everyone is on a recorded company line.

Check reviews

Before joining a new company, check customer reviews. A bad review isn't a reason not to join but it is a reason to dig deeper. Worse case, don't be afraid to find another job.

The hard sell

Many investment products are sold by way of ‘hard sell’.

As the saying goes, investments are sold not bought. That maxim requires tenacity and persistence which generally leads to a hard sell. But it doesn't have to be that way.

Convincing someone to buy an investment they don’t want or can’t afford is not good business. An unwilling buyer will shout louder than a willing one if things go wrong. There are therefore both commercial and ethical reasons for not opting for the hard sell.

In conclusion

Taking an ethical approach to selling is the only way if you wish to build a sustainable business and sleep soundly at night. The sensible approach before launching any investment onto the public is to work from the assumption that it will fail. If your White Paper, sales document or script are water tight, regulation is in place and checks and balances have been implemented within the sales process you have protected your downside. Skimp on any of the areas we have talked about in this article and the downside could be the same treatment that is coming the way of the pariah Sam Bankman-Fried.

 

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Harry Maximillian
Harry Maximillian

I am an author, freelance writer, coach and entrepreneur. I write on a wide range of subjects from self-help tips to personal finance, from handling death to cryptocurrency, from combating aging to exercise. My aim is to inspire and inform.


HarryMaximillian
HarryMaximillian

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