The ethics of financial institutions: portfolio management perspective

Abstract

When investors access to financial institutions' services, they usually look for a financial partner who will ensure their belongings' safety, respect their privacy and deserve their trust. Unfortunately, in light of the recent financial market collapse, proofs have been found that many of these institutions were worthy of their clients' trust.The blunt reason behind that fact has been their lack of ethics. Due to the abscence of financial advisors' honesty, integrity and transparency, many investors, at the international scale, saw their properties being wiped out, without understanding the grounds of their misfortune. They were just unaware of their risk exposure. When it comes to managing portfolios, and by the mere fact of being a financial advisor, it is of utmost importance to ensure the advisee is conscious of his risk exposure when investing. Assessment of investors' profiles should procede asset allocation. As this has not been the commonpractice in many blanks, room for unfair and deceptive trade practices has been made. Indeed, a review of advisees' risk appetite and financial know how showed great discrepancies between their investors profiles and their portfolio holdings. Subsequent questionnaires and interviews revealed a lot misunderstandings about about portfolio management techniques. As ethics include due care, honesty, integrity and transparency, and since clients' interests should be one of the banks' main objectives, a system controlling financial advisors' practices is to be put in place.