Name: _________________________________ Period ________ Date ____/____/____
Ethics of the
Financial Professional
Minds on the Markets
Module 08 – Lesson 1
1. Ethics
1.1. Why is it important that financial professionals behave ethically?
1.1.1. A friend of yours describes another person as being ethical. What comes to mind
when you hear this description is:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2. What are Ethics?
2.1. The _____________________________________________________________________
___________________________________________ . Ethics can be summarized by the
“
”:
2.1.1. “Do unto others, as you would have them do unto you.”
2.2. Business Ethics: The _______________________________________________________
. Ethics are the structured examination of how
institutions and individuals should __________________________________________ .
2.2.1. Example: A portfolio manager must give the same consideration to the portfolio of
family members as the portfolio of small, individual investors.
3. Why are Ethics Important?
3.1. They act as a _____________________________________________________________ .
3.2. Ethical business practices give customers confidence that their __________________
_________________________________________________________________________ .
3.3. Professionals, by virtue of being in a specialized industry, generally are experts in a
particular field. This knowledge, if not used ethically, can be used in ____________ .
_________________________________________________________________________
3.4. The industry’s reputation is untarnished and clients can put trust in the industry when
ethics are publicly known and displayed.
Name: _________________________________ Period ________ Date ____/____/____
4. Ethics vs. Law
4.1. There is a difference between
. Something can be
legal, but unethical. In the financial industry, it is important for professionals to adhere
to the ____________________________________________________________________ .
4.2. Example: Business Week addressed a real life example of how the law and ethics can
disagree. In the article, TV producers of a reality show allowed a woman who is an
alcoholic to drive while intoxicated.
Under the law, the TV producers are _________________________________________
for the woman and are treated as witnesses to the crime and not held liable for any
accidents that occur. However, it is argued that the producers have an ethical
responsibility to ___________________________________________________________
_________________________________________________________________________ .
5. Fiduciary Responsibility
5.1. Financial service professionals have the responsibility to _______________________
. This means that
professionals must work for their clients when making investment decisions. They
have to act _______________________________________________________________ .
The word
comes from the Latin word meaning “
.”
It is paramount for financial professionals to maintain their clients’ trust and act in their
best interest.
5.2. Example: Financial professionals need to base their recommendations on the customers’
_________________________________________________________________________
and other information to choose investments that are best suited for their situation.
Financial professionals should NOT base their recommendations on _____________
_________________________________________________________________________ .
6. Types of Ethics
6.1.
.
6.1.1. This type of ethics is derived from philosopher Immanuel Kant.
6.1.2. Under Kant’s view, ___________________________________________________
_____________________________________________________________________ .
Name: _________________________________ Period ________ Date ____/____/____
6.1.3. Every individual must be ______________________________________________
_____________________________________________________________________ .
6.2.
.
6.2.1. Makes decisions that __________________________________ for the most people.
6.2.2. Another way to distinguish this type of ethics is asking if “ _________________
____________________________________________________________________ .”
6.2.3. An action is “
” if more people will benefit from it than will not
benefit from it.
7. Corporate Responsibility
7.1. The
set forth by an individual firm.
Generally, a firm will put in place a __________________________________________
it will adhere to. These standards usually
include making decisions with the best interest of their clients, shareholders, and the
community in mind. Corporate Responsibility also creates _____________________
___________________________________________ (fair hiring, non-harassment, etc.).
8. Why are Ethical Business Practices Hard to Maintain in the Financial Industry?
8.1. Generally, a financial representative’s livelihood relies on his/her ________________
_____________________________. __________________________ are given to employees
based on
. Thus, employees are more tempted to make
decisions that will _________________________________________________________ .
9. Case Studies
9.1. Enron
9.1.1. An energy and commodities company that _______________________________
_____________________________________________________________________ .
9.1.2. Former CEO, Jeffrey Skilling, _____________________________, is currently
serving 24 years in prison (although his sentence was later reduced to 14 years).
He was also fined $24 million.
Name: _________________________________ Period ________ Date ____/____/____
9.1.3.
, Andrew Fastow, served six
years in prison for his involvement.
9.1.4. ENRON: The Smartest Guys in the Room is a 2005 documentary depicting the
scandal.
9.2. Bernard Madoff
9.2.1. Created the largest Ponzi scheme in US history.
 Ponzi (aka Pyramid) Scheme: ___________________________________________
. In
essence, money is shuffled around while the runner of the Ponzi scheme greatly
exaggerates the _______________________________________________________ .
9.2.2. Madoff fabricated gains to his investors of approximately $65 billion when his
investors had actually
. He was sentenced to 150 years in
prison and was forced to forfeit over $17 billion in March 2009.
9.3. Marc Dreier
9.3.1. A prominent lawyer who was
sentenced to 20 years for running a
in May 2009 and
from 2004-2008.
9.3.2. Dreier swindled $400 million from _________________________________________
by selling $700 million of _________________________________________________ .
9.3.3. Dreier’s story is told in the 2011 documentary, Unraveled.
10. Web Challenge #1: If financial professionals are compensated when they take risks (in hopes
of a big win and a big pay day), we shouldn’t be surprised when they do so. Therefore, a lot
of attention has been paid to how we motivate and compensate financial professionals,
especially CEOs and other executives at financial institutions. Research compensation
reform that has been proposed (the EU has been a leader). Summarize three major reforms
and the intended result of each. Finally, state whether or not you believe they will be
effective, supporting your assertion.
11. Web Challenge #2: The Enron Corporation was once the 7th biggest publicly held
corporation by market value, and it was largely a sham. Bernard Madoff ran a classic Ponzi
scheme. Research the two cases and make a choice as to which incident was worse. Support
your answer.
Name: _________________________________ Period ________ Date ____/____/____
12. Web Challenge #3: An epic Ponzi scheme that got little attention once Bernard Madoff came
along was that of Allen Stanford. Research Stanford’s scheme as well as Madoff’s. Identify
three strategies that both used to attract so much investor money.