Rob Swystun, Pristine Advisers
There is good news and bad news as far as ethics go on Wall Street.
The bad news is that a recent study of financial professionals on Wall Street has uncovered widespread misconduct, acceptance of illegal activities and disregard of client interests — especially among the younger generation of up-and-coming financial professionals.
The good news is that financial professionals on Wall Street are at least aware of the concept of ethics. (It’s a start, right?)
The aforementioned study was done by research firm ORC International and commissioned by Labaton Sucharow, a law firm that is dedicated to representing US Securities Exchange Commission (SEC) whistleblowers.
Conducted June 18-27 of this year, the confidential online study queried 250 respondents 18 years of age or older who work in the financial services industry. These respondents were employed as traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisors, asset managers, and stock brokers.
And now, a list of percentages meant to shock and awe you while being easy to mentally digest:
- 52% of respondents believed that their competitors engaged in illegal or unethical behavior
- 24% felt employees in their own company had engaged in illegal or unethical behavior
- 23% reported that they had observed or had first-hand knowledge of wrongdoing in the workplace
- 29% believed that financial services professionals may need to engage in illegal or unethical behavior to be successful
- 28% felt the industry does not put the interests of clients first
- 24% admitted they would engage in insider trading if they could get away with it
The most worrying part of the study is that for each question asked, younger Wall Street professionals were significantly more likely to be aware of, accept and engage in illegal or unethical conduct than their older peers. That does not bode well for the future (in case you missed the inference there).
Perhaps that’s why Labaton Sucharow entitled the report they released about the survey; Wall Street in Crisis: A Perfect Storm Looming. Catchy title.
“Many in the financial services industry appear to have lost their moral compass, and younger professionals pose the greatest threat to investors,” partner and chair of the Whistleblower Representation practice at Labaton Sucharow Jordan Thomas said in a press release. “Wall Street needs to take the first step toward recovery and admit that it has a corporate ethics problem, or Main Street should brace itself for more scandals.”
I’m thinking Main Street needs to invest in some sandbags.
That’s because Wall Street is supposed to serve as a sort of first line of defense for investors, but the survey also uncovered fundamental ethical weaknesses throughout the financial services sector.
- 26% of financial services professionals believe the compensation plan or bonus system at their company incentivizes employees to compromise ethical standards or violate the law
- 24% fear retaliation if they were to report wrongdoing in the workplace
- 17% felt that leaders in their firm were likely to look the other way if they suspected a top performer had engaged in insider trading
- 15% doubted these leaders would report actual insider trading violations to law enforcement authorities if a top performer was involved
“Our survey suggests there is a big disconnect between what the financial services industry preaches and what it actually does,” partner and head of case development at Labaton Sucharow Chris Keller said in the release. “Until a culture of integrity and stewardship is established, investors will be at risk.”
However, this is like one of those documentaries that tells you the world is a terrible place but at the end shows you a glimmer of hope. Observe; leadership changes and organizational reforms in financial regulatory bodies over the past year have raised the confidence levels of financial services professionals.
- 62% felt that the SEC is effective at detecting, investigating, and prosecuting misconduct
- 57% felt that the Financial Industry Regulatory Authority (FINRA) is also effective in this regard, and since the last survey, conducted a year ago, each of these findings has increased by almost 100%
- 89% of financial services professionals indicated a willingness to report wrongdoing given the protections and incentives offered by programs like the SEC‘s Whistleblower Program.
- 60% of financial services professionals know about the existence of the Whistleblower program (up from 49% a year ago)
Those last two numbers are important, as they imply that the SEC and other authorities should be able to anticipate an influx of whistleblower submissions in the coming years as more people learn about the program and become emboldened to step up and say something when they witness misconduct happening.
“There has been a green line that financial services professionals have historically feared to cross, but they are now more willing to break their silence because of the SEC Whistleblower Program,” Thomas said. “In the coming years, I predict many of the SEC‘s most significant cases will be the result of whistleblowers who report their tips to the agency.”
The program offers eligible whistleblowers significant employment protections, monetary awards, and the ability to report anonymously regardless of nationality.