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What Is Ethics in Financial Management?

Financial professionals must act conscientiously when handling funds for their clients.
It is essential that financial managers are trustworthy, discreet, and adhere to ethical codes.
Article Details
  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 25 October 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Ethics in financial management is the application of a code of behavior for financial professionals. Like other people with professional certifications, financial managers have certain obligations and expectations from society. They must act responsibly and with good faith when handling funds for clients; these may include including governmental agencies, financial firms, and individuals who entrust their investments to financial management consultants. Many professional certifications in the financial industry come with their own codes of ethics, and people may have additional requirements from individual employers with standards for their staff.

Financial management professionals have a degree of obligation higher than a member of the general public because of their training and professional standing. A person who gives money to a friend has a different expectation than someone who deposits money at a bank or with a broker, for example. In exchange for a higher degree of faith and trust from members of the general public, financial professionals have to comply with higher ethical guidelines. Ethics in financial management provide clear guidance.

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Honesty, including full disclosure of risks and benefits, is one aspect of the ethical obligations placed on financial professionals. When advice is offered, it should include a clear discussion of why a particular course of action is advised, and how clients can find out more if they are curious. In addition, good faith dealings with funds are also a requirement of ethics in financial management. People caring for money that does not belong to them need to maximize returns, weigh risks with care, and represent all their clients with equal care and respect. This can involve activities like balancing conflicting needs in an investment fund when some people want to withdraw and others want to stay.

Respect for confidentiality is also an issue. Financial matters can be sensitive, and ethics in financial management require maintaining privacy. This includes not disclosing personal financial information to third parties, unless required by law. The manager of a fund may need to prepare tax declarations for the government, for example, or turn records over to regulators conducting an investigation. It is not, however, permissible to tell one client how much another made in a given year, or to release statements to anyone who asks for them.

It is not uncommon for financial institutions to develop a list of ethics in financial management that their personnel must comply with at all times. This list may be published for the benefit of members of the public who want to know more about how the company operates. Ethical breaches can be grounds for legal repercussions if they also involve breaking the law. For example, a manager who deliberately gives bad advice for the purpose of personal enrichment may be subject to legal penalties.

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