Guilty By Association: Financial Service Companies Must Act Now to Restore Investor Trust

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Each new revelation of corporate misconduct in the financial services industry further erodes investor trust; so say Suzanne Baldino Jones and Mark W. Heisler, management consultants and co-authors of the book, From CellMates to SoulMates: Integrating Sales and Service. With recent criminal and civil indictments filed (and charges pending) against several mutual fund companies for allowing Canary Capital Partners (a Hedge Fund) to conduct late trading, the mutual fund industry is now the latest segment to be exposed for illegal/illicit practices. “Hoping things will just blow over is not an option. Everyone in the industry is guilty by association.” says Baldino Jones.

-Each new revelation of corporate misconduct in the financial services industry further erodes investor trust; so say Suzanne Baldino Jones and Mark W. Heisler, management consultants and co-authors of the book, From CellMates to SoulMates: Integrating Sales and Service.

With recent criminal and civil indictments filed (and charges pending) against several mutual fund companies for allowing Canary Capital Partners (a Hedge Fund) to conduct late trading, the mutual fund industry is now the latest segment to be exposed for illegal/illicit practices. “Hoping things will just blow over is not an option. Everyone in the industry is guilty by association.” says Baldino Jones.

Jones cites the decision by influential mutual fund rating company Morningstar, Inc. to tell investors ‘move your money out’ of fund companies involved in the Canary scandal as a dramatic warning that there are real consequences to unethical corporate behaviors. Heisler adds, “The repercussions are serious for the entire industry: if you’re a financial advisor, a broker or a portfolio manager and you have clients invested in a company that’s been tainted by corporate misconduct and you don’t address the issue. Your clients will begin to question your integrity, too.”

Media reports pointing to corporate pressures to increase revenues and subordinates’ feeling powerless to say “No” to a boss as underlying motivations for the misconduct are particularly troubling. “These facts raise serious questions about an organization’s values and culture,” says Baldino Jones. “When even a few employees are involved, knowingly or unknowingly, in the wrongdoing, it signals that the company’s written and unwritten principles around ethics are deficient,” she continues.

Jones and Heisler recommend their financial services clients take a comprehensive approach to counter the perceptions of guilt by association:

1.Conduct an internal audit of the company’s books (and portfolios) and communicate the results to their stakeholders to assure them that there are no improprieties. [If any questions are raised, perform an independent or forensic audit].

2.Examine policies, procedures and unwritten practices that affect customers. Look for opportunities to strengthen these systems in ways that build trust. Better communication, work coordination and process integration all foster customer confidence.

3. Thoroughly investigate and act definitively and with transparency on any issues of potential misconduct. Employees must see that unethical behaviors will not be tolerated.

4. Conduct “values-based” ethics workshops for all employees and train non-licensed employees on basic regulatory/compliance issues.

5. Enact (or reinforce) a Code for Employee Conduct.

6. Provide a genuine “safe haven” for employees to ask questions or report potential wrongdoing. A “hotline” is not enough; access to the Board of Directors or an independent body is crucial.

7. Take a retrospective look in the mirror around ethics and values. Senior management must reestablish a values based corporate culture. Management’s actions in its dealings with shareholders, customers and employees must demonstrate trustworthiness.    

Baldino Jones and Heisler suggest that many companies take matters of trust for granted. Baldino Jones adds, “All stakeholders make key decisions based on what management says and does and that’s why our book places so much emphasis on actions that build trust.” Heisler concludes, “Just ask a former Arthur Anderson employee about the impact a breach of customer trust can have on a company.”

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Suzanne Baldino Jones and Mark W. Heisler are founding partners of Competitive Business Strategy Group (CBSG) a management consulting firm that specializes in customer acquisition, loyalty and retention. Suzanne and Mark have more than 40 years combined experience working in the financial services industry. Their newly released book, “From CellMates to SoulMates: Integrating Sales and Service” is published by Virtual Bookworm Publishing http://www.virtualbookworm.com. For more information, contact Mark W. Heisler or Suzanne Baldino Jones at 888-411-5800 or visit http://www.cbsg.com.

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