Letters and Opinion and Securities fraud

Avoiding fraud easier than recovery

July 3, 2010

In response to Greg Andrews’ [column in the June 28 issue], while Congress investigates issues of fraud committed by securities firms, individuals and others in the investment community and considers various regulatory responses, we want to emphasize ways that investors can avoid fraudulent schemes, as the opportunity for restitution rarely compensates investors for their losses.

Investors can avoid fraud by paying attention to the fundamental issues of any financial relationship; specifically, the ethical questions of trust, loyalty and care. Professionals that hold the Chartered Financial Analyst designation are bound to place their clients’ interests above both their own and their employers. Their investment advice must be suitable to the client’s investment experience, risk tolerance, financial constraints, written investment plan and overall portfolio. Also, a written code of ethics and regular training provides boundaries in those situations where “no one is looking.”

Some may think that ethics is a simple matter of knowing right from wrong, but most practitioners find many situations do not fall cleanly to either side. Individuals, families and institutions can take a significant step forward by focusing on the ethical standards of their financial professionals. Doing so gets to the heart of a financial relationship—trust, loyalty and care—values that may require going beyond what the law demands and serve as a basis for long-term wealth creation.

Ultimately, avoidance is the best remedy, because even the most stringent regulation cannot return what is lost when investors are harmed by fraud. 

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Bill Wendling, president
Todd Sears, advocacy liaison
CFA Society of Indianapolis

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