The Value of Virtue


By: Julie Ragatz

Lately, I have been doing a lot of thinking about the virtues, specifically, whether a consideration of various virtues can help inform our understanding of the ethical responsibilities of financial services professionals. I started thinking about this question when a student in our PhD program asked whether he might write his final paper for my course on the virtues necessary to be a truly excellent financial advisor. His assumption was that while competent professionals adhered to the principles espoused in industry-specific codes of ethics, the ‘truly ethical’ advisor will adhere to a specific set of virtues.

If one way of defining ethics is ‘what you do when no one is looking’ it is worth noting the virtues are especially important for financial services professionals. The ignorance that leads clients to seek out financial professionals creates an additional vulnerability insofar as they may find it difficult to determine whether their advisor is truly acting in their best interest. Professional virtue is important because it creates people of good character who will do the right thing, even when no one is looking because no one knows what they are looking  at or looking for. Virtues are also important to guide our behavior when principles are in conflict. Finally, and perhaps most importantly, the virtues help us to know how to perform the morally correct action. Let’s look at an example.

James, a mid-career financial advisor, is the owner of large and successful practice. While he was proud of what he had achieved, he felt as though his professional life had become increasingly unwieldy. His practice consisted of small, low-asset clients, many of whom he inherited in the beginning, as well as a growing group of affluent clients who had complicated estate planning needs. These clients were rewarding both financially and intellectually. James’ success with a particular niche of the affluent market in his area was also generating excellent referrals and leads. James was scrambling to keep up with all of the opportunities and recently added additional support staff to help serve the needs of his practice. After meeting with a career coach provided by his organization, James came to the conclusion that he needed to transition his lower-asset (or C and D) clients to another agent in the organization. Although he had promised many of these clients that he would be their ‘lifelong’ agent, he knew that he could not develop professionally or grow his practice without turning his focus to the profitable part of his business. Every time he thought about how to accomplish the transition, James felt uncomfortable and embarrassed. He had a nagging feeling like he was doing something that was not quite right. He stopped returning the phone calls of his ‘C and D’ clients and instead accepted an offer on behalf of the organization to send a form letter out to his clients announcing that their accounts were being transferred to another agent. Suspecting that he had not handled it well, James continued to avoid their phone calls, instructing his staff to direct all inquiries to the home office.

Many people have found themselves in a situation in which they were embarrassed with how they handled themselves and compound the original error by refusing to own up to it, often going to rather silly lengths to avoid it. What is especially interesting about this situation is that jettisoning ‘C and D’ clients may be the right decision, both strategically and ethically. It is possible to make the case that it is unfair to expect those “A and B” clients who are paying  higher fees to essentially subsidize the other clients. Moreover, it is possible that transitioning these clients may be in their best interests since it will provide them with additional opportunities for service and attention by an agent who has the time to spend looking at their needs. All of these factors may have made this precisely the right decision for both the agent and the clients. However, something feels wrong about this case and it comes down to the manner in which the situation was handled.

Aristotle, an ancient Greek philosopher, said in his work, the  Nicomachean Ethics that there were multiple ways to go wrong in an action, but only one way to perform the action well. This may be a bit of an overstatement, but the fact is that there are many ways to perform a correct action badly and this is one of them. The virtuous person would not have made such a mistake, she would have known the right action to perform, had the courage to perform it and, importantly, she would have performed the action in a virtuous manner.

In the upcoming months, I will be exploring the particular virtues of the financial services professional and how these can help us meet our obligations to clients.