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Financial Services Industry

Ethics in the financial services industry refers to ethics in banking, securities, and insurance. This is a broad field in that it covers an array of somewhat dissimilar products and services, connected by their link to the financial interests of customers. In spite of heavy regulation of the industry, ethical challenges persist. The reliance of customers on the responsibility of members of this industry to care for their financial well-being leaves customers feeling particularly vulnerable. Furthermore, the complexity of many available products and/or services places the industry under additional scrutiny.

Financial Services as a Profession

Providing financial services is often considered a profession. This is clearly linked to the increasing complexity of financial planning and the vital role that planners, agents, and so on play in assisting individuals and companies identify and meet their complex financial needs. Unlike other professions, there is no specific code. There are, however, norms that reflect understood principles and responsibilities that guide behavior within the industry.

Professionalism enjoys a long history in the financial services industry, which dates back at least a century when, in 1915, Solomon S. Huebner articulated his dream of turning the life insurance salesperson into a professional. In 1927, Huebner founded The American College to educate insurance salespeople. Since that day, The American College has established a strong presence in the financial services industry through distance education and the award of respected industrywide designations.

As professionals, members of the financial services industry are both involved in the industry (not merely in the periphery) and knowledgeable as new financial instruments are introduced and older products evolve. Furthermore, they remain committed to serving customers, particularly where customers need guidance in differentiating among products and services and understanding their implications. As is characteristic of professionals, members of the financial services industry take ownership of and responsibility for their industry through self-regulation.

Industry Background

Before the past decade or so, as a result of legislation passed during the Great Depression of the 1930s, financial services were divided among separate industries. Banks were not permitted to sell insurance, and insurance companies were limited to the distribution of insurance products and services. This began to change with the introduction of new financial instruments, such as mutual funds and retirement funds. This, coupled with increasing longevity, which has enhanced the importance of long-term care and access to retirement funds, led to the passage of the Financial Services Modernization Act (known as the GrammLeach-Bliley Act) on November 12, 1999, which created the financial services industry, which now encompasses banking, securities, and insurance.

The Gramm-Leach-Bliley Act was significant in that it paved the way for common entities to offer one-stop shopping for financial products and services. On the one hand, many argue that this step, of bringing these sorts of operations together, was natural, particularly since most other countries either never recognized the distinctions removed by the GrammLeach-Bliley Act or removed them before the 1990s. At the same time, however, there is still concern that the industry needs to be mindful of problems that could arise, such as those linked to conflicts of interest and/or monopolization.

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