The Ethics Problem in Financial Services (Dr. Moira Somers & Philippa Hann) | #425

16:31Dr. Moira Somers:We talked about, I guess, a lack of training or education. We talked about incentives, but you guys go so much deeper in the book. Can you talk about some of the other reasons that good people, like you mentioned in that story you just told, Moira, this is a good person doing bad things. What are some of the other things that can lead good people to do bad things with other people's money?

16:51Rational Reminder Podcast Hosts:People can stumble into it through simply following orders. We have a whole chapter divided to misguided helpfulness. So trying to be helpful and not understanding that you are crossing boundaries that you must not cross. because it just feels like you're doing good or because it feels withholding to not do the thing that you're being asked to do. Both sides of that aspect of helpfulness. Another topic that we take on is not knowing what to do when you've made a mistake. Has anybody in this call not made an ethical mistake at some point? Probably not. I mean, we've probably all stumbled at some point, But what do you do when that happens?

17:35Rational Reminder Podcast Hosts:Mostly we're just told, don't do it. And we're not told what to do when you do do it. And so the impulse is to hide and to just make that bad feeling stop. And that desire to make it stop leads people to do things that just get them in deeper and deeper and deeper.

17:51Philippa Hann:We have the story of John in the book who was exactly that, wasn't he? And it was such an innocent mistake. He was new in the job and he received an email from a client saying, call me, it's urgent. It was one of those clients. We've all had one of those clients. They're demanding and they are aggressive and they just want the right answer right now. And in his heart of hearts, he was just a bit afraid that he did some other stuff that he could do. He knew he could do a good job in it and went home at the end of the day, hadn't called him. Next day, same thing, did the stuff he knew he could do, happy, feeling comfortable doing that stuff.

18:30Philippa Hann:And then eventually when the client contacted his boss and said, why haven't I received a call and his boss speaks to him in the moment, he lies. I didn't get an email and then goes back and doubles down on it. And I told that story at a conference about six months ago. And And a few weeks later, I was at another conference and one of the advisors who'd been there said to me, you wouldn't believe this, Philippa, but exactly the same thing happened in my firm. This was a really great firm with a really good culture. He said exactly that. So I sat him down and said to him, you need to watch Philippa's talk because this stuff happens.

19:05Philippa Hann:And it's that kind of in the moment thing where you are panicking and your brain literally isn't working properly.

19:11Dr. Moira Somers:How do you think financial professionals should calibrate their moral compasses?

19:16Philippa Hann:my view is that a lot of these problems as moira has just said come from that decision making in the moment so when you're going into work you're not necessarily looking out for that ethical dilemma you're not on high alert actually you're just trying to get through the day get through your emails prepare your you know annual planning meetings do all the stuff that you're doing meet the client do your jobs, you're not looking out for their stuff, it can catch you off guard. So in the book, we create a design your own moral operating system effectively, which we worked super hard on to make sure that people could actually take it away and work through step by step who they are, what their vulnerabilities are.

20:04Philippa Hann:That's the kind of thing that we're looking at, because you might be someone who is a huge people pleaser. You know, lots of people are. And in the moment, you find yourself vulnerable because you don't want to say no to someone or you don't want to say, that looks a bit dodgy. I mean, how often do you want to have those conversations? Not often. And if you know that you are someone who is a people pleaser or maybe you are just exhausted, You're just exhausted and you just want it to stop. You just want to get through your emails. You just want the person to stop being cross with you, whatever it is.

20:42Philippa Hann:Or maybe you are reliant on the firm to pay your mortgage or your rent. And actually, you being able to house your family is dependent on you saying yes to whatever it is you're being asked to do. So one of the things that we suggest in the book is that you understand what your own personal vulnerabilities are and that actually you plan around that stuff. So if you are dependent on the next paycheck to pay your rent or your mortgage, you better get working to make sure that you have some money in the background that means that you can say no. Or, you know, if you are a people pleaser, I am a massive people pleaser.

21:20Philippa Hann:I hate saying no to people. So I have to have in my back pocket just some wording that says, oh, hang on a minute. I just need to go away and think about that. Can I come back to you tomorrow? For example, it's having things in your toolkit that means that you are ready for it when it happens. Another important part of that is journaling. When have I felt uncomfortable? When have I been put in a position where I've walked away from a conversation and thought I didn't say what I was thinking or I've agreed to something that feels uncomfortable, that kind of thing. Journaling is an incredibly powerful thing.

21:59Philippa Hann:So we run through a 12-step, actually, moral operating system for people to do on their own or we recommend actually with others. You can sit down and test and ask questions and work through it together. We've both done it and it's a really interesting thing to do. When you have to name your own non-negotiables, so my non-negotiables, for example, are, I don't lie. I don't pretend I know something when I don't. And I apologize when I need to. That last one's really hard. But I find myself bumping up against them more than you would imagine. But because I know what they are, at that point, I can stop myself and think, why am I tempted to tell a lie at that point?

22:50Philippa Hann:What's going on for me? And I am still training. This is a journey of a lifetime. Those things are really important in us looking after our ethical health.

23:02Dr. Moira Somers:Maury, do you have any thoughts on that one?

23:04Rational Reminder Podcast Hosts:Knowing your own vulnerabilities is a particularly challenging one. But I tell you what, the psychopaths out there, they will find your vulnerabilities so fast. They're so good at it. If you look at con artists, do you know what the con in con artists stands for? Confidence. They know how to get you to be confident in them. That's why people end up doing outrageously trustful things with people is because they know how to make you feel confident in them. Mapping out where is it in the past that you might have been tricked by somebody? Or where is it that you would just really like yourself to go offline and just be taken care of?

23:51Rational Reminder Podcast Hosts:What are the points of seduction? Maybe you have a lot of ambition. Maybe you like the shiny things. There's no judgment in this. It's just self-knowledge. And the more self-knowledge you have, the better equipped you are to protect yourself from people who don't have your best interests at heart, or indeed to protect yourself from your own impulses. Eugene Soltis is an author that I quite enjoy following. He wrote a book called Why They Do It, and it's essentially an expose on white-collar crimes. What he found was that these aren't people who sit down with a pros and a cons list and they painstakingly work out.

24:31Rational Reminder Podcast Hosts:It's really worth it for me to engage in this. Most of these people, it was an impulse. It was a momentary decision to just do the thing, to hide, to lie on the income statement that they had to give to the chair of the board. It wasn't well thought out. It was poor impulse control because they were tired. They were pressured. Everybody wanted a piece of them. And they maybe didn't know what to do. And so that mapping out of what would I do in these circumstances? How do I prevent myself from getting in these circumstances? And who are my people? Who are the people that I can pick up the phone and call when I am struggling with an issue and I don't know what the right thing to do is?

25:17Rational Reminder Podcast Hosts:Or even worse, when I do know what the right thing to do is, but I don't want to do it because it's going to be hard. So identifying who are your people that will solidly stand behind you as you do the right thing.

25:33Dr. Moira Somers:You tell the story of Tom Harden in the book, who we had on this podcast in episode 398. You talk about this in the book too, about how he did call people, but he kind of used it as...

25:43Rational Reminder Podcast Hosts:He used it for confirmation bias is what he used it for.

25:47Dr. Moira Somers:Yeah.

25:48Rational Reminder Podcast Hosts:In psychology, one of our ethical guidelines is if you're concerned about somebody else's conduct, the conduct of a colleague, you have to reach out to that colleague directly. Oh, that's hard. That's really hard. The notion is that you've got to strengthen yourself to have hard conversations. I uncovered misconduct in one of the family offices that I'm working with. This just happened a couple of months ago. It was obvious that somebody that everybody loved was going to have to be let go. And I had to call up Philippa and say, oh my God, I hate this. I hate this. This wasn't a psychopathic person.

26:28Rational Reminder Podcast Hosts:This wasn't a narcissistic person. This was somebody who was trying to do the right thing and went horribly wrong. I had to call up Jim Grubman and Philippa and say, help me see what I'm not seeing or help me conceptualize this in a way so that when the rubber hits the road, I can do the right thing. And they were very helpful.

26:48Philippa Hann:And what a privilege to be that person for someone else. It is so much easier to see it for someone else than it is to see it for yourself. We sort of ended up sort of a bit aghast because this is the stuff we've been writing about. And it was happening to Moira. And so that was wild, actually, to see the book in action.

27:07Dr. Moira Somers:That is very cool. We had Jim Grubman on in episode 282, I think. You mentioned ambition, Moira. And that's one of the things we talked to Tom Harden about is that his own desire to be successful was one of his big weak points that led him to do what he did.

27:24Rational Reminder Podcast Hosts:Any one of the strengths that we have can be turned into a weakness. Are you confident? Watch out. Are you ambitious? Are you not confident? Are you very humble? Just knowing yourself and knowing what to do, knowing how that could show up. If you think of how would a spy approach you? What would Matahari do to seduce you? What would an objective outsider say that your vulnerabilities are? How do you deal with those?

27:52Philippa Hann:And being isolated is one of those vulnerabilities, having that sounding board outside of yourself. And one of the real difficult places to be is either a new person in a firm, which leaves you very isolated and wanting to please, or managers, particularly new managers when they're suddenly moving. I mean, I remember moving into that management position and feeling like I had to have all the answers, feeling like I had to make all the decisions, feeling like I couldn't make a mistake, et cetera, et cetera. And those are, particularly when you're feeling that way, an incredibly vulnerable position.

28:29Philippa Hann:Is that resonating with you, Cameron?

28:31Dr. Moira Somers:It sure is. It's so interesting. It's very much the system, right? And the roles inside the system can cause this issue to be exasperated.

28:38Philippa Hann:How you run your firm, how you create an environment for integrity, for relationships is so important when you're running a financial firm.

28:48Rational Reminder Podcast Hosts:One of the cases that we highlight, we sort of divide the book into three sections. So there's sort of what's been wrong with traditional ethics training and what needs to happen to make it better. What do the regulators want us to know? What does the evidence, the research evidence say? That's the first part of the book. And then the second part of the book is case studies. study after study of some of the headlines they hit the news some of the cases that philippa was involved in some of the cases that i was involved with as a psychologist just looking at what was there in the firm that allowed things to go on in some cases that encouraged bad stuff to go on or that didn't prevent it like having somebody that you trust implicitly as your accountant and you don't require a second signature.

29:38Rational Reminder Podcast Hosts:Well, that's just setting somebody up. If things start going awry in their life, you've just set them up to engage in workplace embezzlement that can go undetected. Yes, it is his fault or her fault, but it's kind of also your fault if you're the business owner and haven't set up better practices. We have to think about the fact that we're working with vulnerable human beings with all of these strengths and weaknesses, and that systems have a huge role to play and culture has a huge role to play in whether stuff is ethical or not. Even how easy do you make it to surface a mistake?

30:21Dr. Moira Somers:I was just going to jump on that word culture because, Ben, as you know, in our environment, mistakes happen in trading, right? And the team knows it's never a bad time to make the right decision. And often you could say, oh, the client would never notice, but everyone here knows, nope, take the high road, always do what's right. You know what's right, do what's right. And it's just part of our culture, I believe. Right, Ben? Yes. And part of our system is like, we're not punishing people for bringing forward a mistake like that, which I think is how you could get to a place where they would want to hide it.

30:52Dr. Moira Somers:Yes, the system will pay for the mistake, not the person.

30:55Philippa Hann:But there's punishment and punishment. So there's punishment of telling someone off or saying, you will pay for it. and all the rest of it. But there's also punishment in a sigh. There's punishment in a look. All of that stuff, we are sucking in this information all the time. But one of the red flags that you should be looking out for is if people are not making mistakes. Anyone who doesn't make mistakes, I'm going to be asking questions to them, what's going on here? Because it's not normal to not make mistakes.

31:24Dr. Moira Somers:Yeah, that's interesting. Moira, something that you mentioned a couple times now that jumped out to me. The way that I read through the book was it's often just regular nice people who are doing bad stuff, but you mentioned psychopaths a couple of times. How worried should people in everyday life for doing consuming financial services be about psychopaths?

31:44Rational Reminder Podcast Hosts:The evidence is that they disproportionately gravitate towards financial services and business.

31:50Dr. Moira Somers:It's where the money is.

31:52Rational Reminder Podcast Hosts:Because that's where the money is. It's like the old story of the bad bank robber getting caught and he was asked, why do you keep robbing banks? And his answer was, well, that's where the money is. So that's where the money is now. And we know that financial services are one of the top two targets for workplace fraud and financial misconduct, because that's where the money is. And so pure psychopaths often aren't very successful, but sort of psychopath Pathlight, The Snakes in Suits. There's a book that's been written by a Canadian, one of the world experts on psychopathy is actually here in Canada, Robert Hare.

32:35Rational Reminder Podcast Hosts:And he talks about what does it look like when you're successful at this? And you tend to be charming. You know how to find people's longings and tap into them. You know how to court friendship with the right people. You rope them in, you seduce them, or you belittle them if you need to. It is a big issue. And they are the ones that tend to leave this trail of destruction, Ben. If they're really got really big brains, they often try to mastermind equally big schemes to get people out of the money. But boy, relationally and from a mental health perspective, they wreak havoc.

33:18Philippa Hann:and we were discussing this the other day, Moira and I, because people are generally so relieved when the psychopath is no longer in the firm because they are so destructive, they tend to button down the hatches, breathe a sigh of relief, provide a reference to say, well, they worked between this date and that date and they turned up. Actually, we're all a bit afraid to say, and I think they're a bit of a psychopath and I definitely wouldn't employ them because We're afraid of being sued. And it is a particular problem because you will see that they will move from firm to firm until they find the opportunity or they'll get away with stuff and they'll get away with stuff and they'll take their yes people with them.

33:58Philippa Hann:And they will sink to wherever they can actually get away with whatever it is that they want to do that provides them with the with that they get out of it what they want to get out of it. And it is a real problem because non-psychopaths are just so relieved to have them out of their lives that they walk away. And it's understandable.

34:20Dr. Moira Somers:I think you referenced the paper. I think it's called The Market from Financial Misconduct. Is that what it's called?

34:26Rational Reminder Podcast Hosts:The Market.

34:27Dr. Moira Somers:Yeah, that's right. Advisors gravitate to certain firms after having conducted misconduct and then they end up.

34:34Rational Reminder Podcast Hosts:They are recruited. It's not just they gravitate towards it. they are recruited preferentially by certain firms who like to engage in exploitation of vulnerable people.

34:46Dr. Moira Somers:How do we become ethical people?

34:48Rational Reminder Podcast Hosts:That's such a nice question after all this.

34:51Dr. Moira Somers:Such an easy question, obvious one.

34:54Philippa Hann:I have a theory around you look after your physical health, you look after your mental health. And I think there is an argument to say, and that's what we conclude in the book. You need to be taking steps to look after your ethical health. Spending some time working on yourself is vital for you to be able to look after your ethical health. And there is this kind of triumvirate, if you like, of weirdly self-esteem. because if you have self-esteem you can say I don't want to do that thanks very much I'm good people who lack self-esteem tend to go along to get along so developing self-esteem and in order to develop self-esteem so there was a research project that they did with some school kids they realized that kids who have high self-esteem have great exam results or have better exam results.

35:56Philippa Hann:So they went into schools and they bolstered up these kids and they gave them all this really huge self-esteem and they went and did their exams and they did no better than anyone else. What they realized as a result was that you don't get good exam results because you have good self-esteem. You have good self-esteem because you've put the work in to have the exam results. So in order to get good self-esteem, you have to put the work in. You need to go and do the exams. You need to go and make sure that your private life is in good shape, that you are tackling the difficult things, that you're having the conversations, that you're attempting those things.

36:32Philippa Hann:So self-esteem is really important. Self-compassion is really important, weirdly, that came out of our research. If you are able to say, well, it's OK that I made a mistake because I'm a human being and humans make mistakes and it's OK to go and tell my boss, sorry, I think I made a mistake. Can you help me? and having enough compassion for yourself to say, can you help me? I mean, if someone goes to you as their boss and says, can you help me please? It's a totally different conversation. In what circumstances are you ever going to say, no, I'm not going to help you. And that self-actualization piece, so doing the work on yourself in terms of what are your values?

37:09Philippa Hann:What are your vulnerabilities? How are you going to deal with those? What are your non-negotiables? Do you understand yourself? are you doing the journaling? Do you have your ethical sounding board around you? Do you know where to go and who to speak to? There is work which is involved in this, but that work, I promise you, well, you know this, is so worth it. Nobody goes into a profession in order to wreak havoc. People go into a profession to help people and to achieve that sense of self. And in order to avoid the pitfalls, you need to do that work on yourself.

37:48Rational Reminder Podcast Hosts:I love that answer. And I think even the willingness to do those things is perhaps seeded in us way, way earlier. And I ask you, Cameron, how did you become ethical? When we ask that of the regulators, and I remember coming back and asking you this question, most people, first of all, point to people in very early childhoods. They talk about their parents, people who taught them from a very young age. They talk about coaches being part of a religious tradition. There's a foundational element to that that says there is right and there is wrong. This is what to do. And also, this is what will happen if you don't do the right thing.

38:33Rational Reminder Podcast Hosts:That's part of the answer to how do we become ethical is that we are taught by people who have our best interest in heart. And we are also modeled. There's a common saying that values are caught rather than taught. And so we see people around us doing the things or not doing the things that they're counseling us to do. And we see, how'd that work out? Can somebody like me do this kind of thing too, for good or for ill? I think then as we get older, we do start to get explicit teaching, especially if we are in a profession that has ethics requirements as part of ongoing certification or whatever.

39:14Rational Reminder Podcast Hosts:We start learning ethical reasoning. We might be actually taught, this is what you do here versus there. This is how to even think ethically. These are some of the thinking skills that are required. where we found that the ethics breaks down is that it doesn't sufficiently engage the heart. I hate to sort of do that dichotomy, but in other words, it doesn't teach us what to do when it's tough to do the right thing. It just says, do the right thing. Oh, well, thanks. That was helpful. Don't cross boundaries. Oh, great. But what if I have, or what if it feels like it is ethical to cross that boundary?

39:56Rational Reminder Podcast Hosts:What if it feels cold and callous and absolutely heartless to tell a client that I can't do this thing. Well, uh-oh. I'm either hooped or I'm helped because I've had training on what to do and I know who I can talk to when it's really, really hard. It's not a solo sport. Not from the earliest days that we're on the earth. We're always getting inputs on what it means to be ethical, to be a good person.

40:26Philippa Hann:I really love that part of our book, actually. Ethics isn't just about identifying when there's a problem and knowing what to do. It's about having the moral character to actually do something. I think when we were looking at that, it just kind of hit me like a freight train, that it's so true, not just knowing what the right answer is, but having the character, the motivation, ability, desire to feel uncomfortable to do the right thing at the same time was such a big thing when we were writing that.

40:59Dr. Moira Somers:One of the things that comes up in your case studies, Tom Harden is a good example, where when we had him on this podcast, he tells his whole backstory and you can tell he's like, he's a good person. He's raised well. If you asked younger Tom, if you would do the things that he did, he would say, absolutely not. But then he did them. What causes that ethical drift in people over time or what can cause it?

41:21Rational Reminder Podcast Hosts:If you talk to him, you will know some of the story, but that is kind of universal. He was in an extraordinarily high pressure environment that did not tell people what right looks like here and what wrong looks like here and what to do if you are tempted to cross the line. There was no explicit ethical teaching from the firm leaders on down. There weren't conversations. It was sort of an assumption. Well, don't cross the line. He was what, 26 when he started? Maybe not for that particular firm, but right out of college, he went into the hedge fund world at the end. It's kind of known for its ruthlessness.

42:05Rational Reminder Podcast Hosts:So if you don't have people explicitly saying this is what right looks like, and these are where your temptations are going to lie. We had one of the people that we highlight, she was having dinner with the Bushes and the Reagans, these big names in American politics, when she wasn't even 30 yet. And it was just because of her job. It was all very heady. and you start to have a sense of this is what normal looks like. And she said the notion that, huh, they're 60. I'm less than half their age. Maybe I shouldn't be having private tickets in the sports boxes. Maybe that isn't normative. But again, there was nobody that she could talk to about feelings that we're sort of embarrassed about sometimes.

42:54Rational Reminder Podcast Hosts:Like, what do I do with my envy? What do I do with the fact that I am feeling really judgy about how this billionaire and their kids just think that they're all that and a bag of chips and that they can just treat us like we're nothing? What do I do with those feelings? What do I do with the fact that I want to be part of that family? Where do we go with that? You can learn how to manage difficult emotions, but the impulse to just swat them away like they're nuisance mosquitoes and that we shouldn't bother acknowledging is the very thing that leads us to act out of them at a weak point. So that's what Tom Harden did.

43:33Rational Reminder Podcast Hosts:He was surrounded by all of this. He wanted to help a friend. It was well motivated in the moment. He wanted to help a friend who was in a great distress. and then he realized oh my gosh my friend is making crap loads of money and i'm being all high and mighty and not acting on knowledge that i had well that sucks and so slowly this drift began and he did reach out to people but he didn't reach out by saying i have a dilemma this is both sides of it. He just talked to people who he says, you know, offhand, they were some of the good guys, but he didn't give them the whole fact case. They just said, oh yeah, you're fine.

44:19Rational Reminder Podcast Hosts:So we talked to people about how should you do a consult? When you reach out for a consult, what should that look like? What questions do you need to ask? What do you need to surface? And part of that includes, what would it look like if I were wrong? Like really looking for disconfirming evidence. So important.

44:40Dr. Moira Somers:Why doesn't traditional ethics training work?

44:43Rational Reminder Podcast Hosts:For all of those reasons. When you think about even maybe the last time you certified, you did an ethics class for your certification, they tend to kind of serve up ethical dilemmas on a platter. Like you know you're getting an ethical dilemma in the classroom, right? Well, in real life, they don't present themselves like that. like with some like unclean, unclean leprosy sign in front of them, they just sneak in. If you are not actively asking a question, is there an ethical issue here? And which of us routinely think to ask that, then it won't even be part of the reasoning. Daniel Kahneman talks about this and he calls it the YCIDI problem.

45:28Rational Reminder Podcast Hosts:What you see is all there is. So you don't think to ask things like, this product provider who's hyping this amazing new product, what aren't they telling me? Who's benefiting from this complexity? Because it's making my eyes cross as I try to read the prospectus. Do I truly understand this or am I going to tuck and draft behind somebody else's assumed competence and superior knowledge? Those are some of the things that we found were quite critical. Those were the factors that led people to just kind of go offline. So even if they'd been taught ethical reasoning at some point, it doesn't even get triggered much of the time.

46:11Rational Reminder Podcast Hosts:You don't even know that you've got an ethical dilemma. You skate across that line because you're too busy. You're incentivized to do so. You're incentivized to look the other way, or you don't know what questions to ask. I know you've done some really good conversations with Jason Pereira over the years. He talks about that all the time. Most advisors do not really know how to analyze the quality of any of their offerings. They were not trained in statistics. They don't know how to read the papers. They go to court and they feel prepared to attest to the fact that, yes, I was competent to do this.

46:48Rational Reminder Podcast Hosts:And yes, I was acting in the client's best interest. And it all falls apart like a house of cards under cross-examination.

46:55Dr. Moira Somers:Jason has great stories of being an expert witness in those cases and providing the evidence that the advisor did not in fact know what they were doing, even if they thought that they did.

47:06Rational Reminder Podcast Hosts:So that gets us to, you better figure out who you want to work for. Because there are a lot of places that don't have your back and saying, my firm told me to do it is not a defense. Our hearts are particularly heavy for the young people, like the one I mentioned at the outset of this call, who don't know what they don't know. You know, there's lots of people giving advice out there who don't even have the basic, you know, CFP qualifications or whatever that equivalent is in the UK, Philippa. They might have a particular license to sell a particular thing, but they don't know how to look at the overall picture, and they don't know how to analyze what they're being told to do.

47:47Dr. Moira Somers:I remember the first time that I understood how the RRSP and TFSA accounts work. Those are the registered accounts, the tax preferred accounts that we have in Canada, at least two of them. And it was well after I had been licensed to sell mutual funds and insurance, which is terrifying. I remember that light bulb going off and being like, huh, It feels a little bit irresponsible that I was able to sell financial products without understanding this. I've had many similar confessions on the podcast, Ben, over the years. Like, it's embarrassing to look back at my early years and how the industry worked back then.

48:23Dr. Moira Somers:Totally embarrassing. It's ridiculous.

48:26Rational Reminder Podcast Hosts:And I wish I could say that's in our rearview mirror. But in our book, I kind of take on Canada's banks and some of the undercover investigations that were done very, very recently. and the follow-up investigations that were done by the Securities Exchange Commissions. And what changes as a result of these? Nothing. One-third of people who are selling products at banks acknowledge that they don't really know what they're selling or have sold things that are not in the client's best interests.

49:00Dr. Moira Somers:Yikes! On that topic, what role should regulators play in dealing with financial misconduct? A bigger one.

49:11Philippa Hann:I come from the UK perspective. It's funny, you see a cycle of a tightening of regulation. In response to a scandal usually, right? Yeah, so there's a big scandal. So we had the pension misselling scandal back in the sort of late 90s. They tightened regulation. Then we had RDR in 2013 and they did upgrade the requirement for qualification. So I think joining the financial services profession is not the same as qualifying as a psychiatrist or a psychologist or a lawyer or a doctor. The bar to entry is, I think, probably too low. But also that tightening of regulation. We're now in the part of the cycle where the government wants growth.

49:53Philippa Hann:And so they're looking to dumb down the regulations that isn't in the interest of the general investor who actually probably needs something really super dull, doesn't need to be invested in individual shares. They need to be in some sort of diversified global portfolio, et cetera, et cetera. So the role of the regulator actually, I think, is to fight against that, to lobby for tighter regulation and actually to be braver to remove people from the profession itself. I think we don't see enough of that. There's also another part of it for me around what the requirements are for insurance. You can't be a qualified advisor without having the qualifying insurance.

50:38Philippa Hann:Now, the detail of that qualifying insurance engages the insurers in this question of regulation effectively, because if you can't get insurance, then you can't be regulated. But if we continue to allow insurers to exclude various products or services, then they will continue to do that and nothing will change. But actually, they're a really powerful agent for change. If your regulator refuses to allow your insurer to exclude certain liabilities, then you can bet damn sure that those insurers will be all over you because they don't want you to be sued. They don't want you to be fined. There is that side of it as well, which I think is wildly underutilized by regulators globally.

51:28Philippa Hann:Look at the requirements for lawyers in the UK. Insurers cannot exclude liability for products or pieces of advice. And therefore, you are at risk of not getting insurance. If you can't get insurance, then you can't trade. And it is an extremely powerful thing. We are not using it well enough in the financial services industry, I believe.

51:51Dr. Moira Somers:Really interesting point. Philippa, you mentioned financial problems earlier. What are some other warning signs of possible future misconduct offenders?

52:02Philippa Hann:We talked about early years. And so the book is written in large parts at early years. People, as Moira said, they are people who are bright-eyed and bushy-tailed. We talk about Evan in the book, for example, who within a month of qualifying was in the middle of a global fraud. His qualification lasted about nine months, and he was in fact banned for life by the UK regulator. So early years is a red flag. Being in debt is a red flag. All the vulnerabilities that we talked about earlier, being beholden to your boss to pay your mortgage is a problem. Being a people pleaser is something you need to be careful of.

52:44Philippa Hann:Being somebody who is low in self-esteem and therefore wants to buy in self-esteem by buying a Maserati or insert name of fancy car. I'm not massively into cars myself. Somebody who feels the need to keep up with the Joneses, actually. Somebody that hasn't done the work on themselves. Somebody who is tired and just wants the noise to stop. There's a whole gamut of really human biases. And that's another reason why we wanted to write this book, because I think there's a whole plethora of information out there for the financial services industry about how our clients feel, how our clients behave, what biases affect, you know, scarcity bias, all that kind of thing.

53:29Philippa Hann:And there's very little out there which focuses on the biases of the advisor themselves. that is part of the reason why this entire book is about where those vulnerabilities might be and gives people that guide path to try and identify where their own personal vulnerabilities might be. One of the things we recommend is that you read this book within a book club so that you can have other people to talk to in a really honest way. I hadn't thought about that. Yeah, I did experience that. And, you know, I love Ben's sort of comment there about, God, it wasn't until I was so many years qualified that I realized I didn't understand the thing that I was selling.

54:15Philippa Hann:And there's a whole plethora, but we hugely recommend that people read this book with other people so that they can do that work together.

54:23Rational Reminder Podcast Hosts:At the other end of the spectrum from that bright-eyed, bushy-tailed, we highlight a category I've dubbed the collapse incompetent. So this was somebody who might have been very, very good, but is being brought down by something. And it could be dementia. We've got lots of people working longer in this profession. And if they're head of the firm, who's going to tell them? It's like the Aesop's fable, who shall bell the cat? I'm not going in there. Are you going in there. That's a real risk factor that an impaired brain is not an insightful brain. You are not going to recognize when this stuff is happening to you.

55:03Rational Reminder Podcast Hosts:You've got to have people around who you can trust to say, I need you to let me know. I remember when my mom said, if you see anything wrong with my driving, you let me know. And when I'm 80, I'm hanging up my keys. And gosh, if she didn't do that proactively. But what do we do for our careers that was that open to feedback? Mostly we're trying to engage in impression management, not tell me the hard stuff. Another one that we took on, this is really a warts and all book, right? Like we dig in and we diagnose in this book and we don't shy away from addictions, family problems. Those are other risk factors that can take people down.

55:45Rational Reminder Podcast Hosts:You know, when your marriage is falling apart, when your kids are acting in ways that are just horrifying to you, terrifying to you, embarrassing to you. It's really nice to go to work. It's so nice to go to work. People like you, they thank you. And work can turn into what's called an applauded addiction. Yay, good for you. Do more. Do more. How about more? And so you end up on this hamster wheel of workaholism because you're really good at it and because you like it often a lot more than you like what's going on at home. Even the certified fraud examiner study that Philippa alluded to earlier, they do highlight family problems as being present in one in 10 of the cases that they work with.

56:33Rational Reminder Podcast Hosts:And certainly we know that if somebody's stumbling into work every morning, smelling like they just fell out of the whiskey barrel, you've got to have some way of saying, Can we talk? We need to talk and find out how to get support for people who need it, who are struggling.

56:50Dr. Moira Somers:For the retail investors who are listening, I mean, short of smelling someone's breath to see if they've been drinking or asking if they're having family problems at home. What can retail investors do to identify high risk advisors before these issues materialize?

57:07Philippa Hann:I always quote a statistic on this. So I was a lawyer for 20 years, sued a lot of finance people, a lot. So I've never sued a certified financial planner.

57:19Dr. Moira Somers:Wow.

57:19Philippa Hann:And I have sued a lot of financial people.

57:22Rational Reminder Podcast Hosts:That doesn't mean I don't get into regulatory problems, but it doesn't tend to be massive.

57:28Philippa Hann:In terms of retail investors being able to identify easily, there isn't a magic silver bullet in any of this stuff. If people have gone to the trouble of certifying themselves, then that is a really good sign. But, you know, I never ran out of work. I had highly intelligent people who were my clients. There really wasn't an easy way to identify the bad guys. Again, that's why we wanted to write this book, because we want everyone to do the work on themselves rather than put the obligation on the retail investor. I do think if your advisor is not talking to you about your entire life, then they should be.

58:09Philippa Hann:If they are just talking to you simply about investments and they've never found out about you and your goals and your hopes and your dreams and what you care about and who you are, then that isn't financial planning. That is just wealth management. And you need to understand the difference between the two. And I'm not saying wealth managers are the bad guys, not at all. But as a retail investor, you do need to understand the difference between what you could get, what you should get, and what you would get if you went to somebody that was looking at you as an entire person, as an entire family, as opposed to a returns first advice process.

58:53Dr. Moira Somers:A couple of weeks ago, we had Barry Redholtz on as a guest. He said, I think the stat is correct that he mentioned, Ben, that 90 % of financial products are garbage. Oh, he said crap. You can say it, Kevin. I'm just being more polite, taking the high road here. But what can advisors do to avoid becoming enamored with bad financial products?

59:15Philippa Hann:They should be as boring as they possibly can be. It is true, isn't it, to be as boring as you possibly can be. and only once you've exhausted the boring, which actually, you know, I now run a financial planning firm and we do the most boring investments in advice ever. Most of our clients just don't need anything exciting. So we talk in the book about this complexity lure. You know, it feels really special to be part of only a few people are being offered this particular exciting opportunity. and in the same way as the bank follows the money it is your obligation to understand exactly how this works and if it doesn't if you don't understand it even if it's the best thing ever you should not be advising on it it is literally your job to understand exactly where that money is going how it is making a return making sure that that makes sense in your mind as to why that's making a return.

1:00:15Philippa Hann:If you've got cross-jurisdictional stuff, then why on earth are you looking at cross-jurisdictional stuff? Who is that benefiting? If you have multiple layers of fees, who's getting paid? Why are they getting paid? Why do you need multiple levels of fees? Why does it need to be this complicated? If you have cross-currency, why on earth have you got cross-currency stuff in there? There's another red flag and another complexity risk. You should be looking at this, asking questions and being the most annoying person that you possibly can, because your role is not to sell products. Your role isn't to impress the person that comes to you with that product.

1:00:53Philippa Hann:Your absolute responsibility is to act in the best interests of your client. And if you wouldn't sell it to your family, why on earth are you considering selling it to any of your clients? Oh, sing it, sister. i just saw too much of this almost all of my career was based around stuff that the advisors didn't really understand and then they didn't understand the downside and they couldn't talk about the downside and they couldn't anticipate the downside and when the downside happened they said oh well nobody foresaw that wasn't our fault it was your fault because you were too greedy client and so i was doing my best i gave you this great product and it's just not my problem or my fault.

1:01:33Dr. Moira Somers:We are on the same page on investments should be very boring. You said you don't think your clients need the more complex stuff. I don't think most people need the more complex stuff that gets sold to more people than it should be sold to. I'm curious, Philippa, in all the cases that you've seen, you talked about how there wasn't an obvious way to identify the people doing misconduct before the fact. Do you think there's a relationship though between the financial literacy of the victims and their propensity to be victimized?

1:02:04Philippa Hann:It's a really interesting question. So I acted for anyone from car mechanics to teachers to hedge fund managers to doctors to the whole gamut of financially sophisticated to financially unsophisticated. I acted for over a thousand British steel, steel workers who were very much not financially sophisticated. I don't mean that in any rude way. They simply weren't. But frankly, who is sophisticated to the extent that you might need to be to second guess a complex product? Who really is not in the financial services industry and advising on it understands how pensions work? I actually don't think that there is a direct correlation between financial sophistication and getting caught up in this stuff.

1:02:55Philippa Hann:it is far more emotional than anything else. So when I talk about the steel workers who were transferred out of their final salary pension scheme, that was all emotional. You don't want Tata to have your money. You want that to go to your family, don't you, when you die? So it was all emotional decisions and this kind of white coat relationship. You know better than me. The regulator has authorized you. Therefore, you have a tick in that box. Therefore, or I should trust you. You know what to do. And actually, it's kind of too difficult. I'm too busy doing my stuff. I want to delegate this. I want somebody else to take responsibility for it.

1:03:35Philippa Hann:Let's go for it. And as I said earlier, I cannot tell you how many of my clients said to me, I never asked the question.

1:03:43Dr. Moira Somers:I'm curious, Mara, what your experience is in similar situations.

1:03:46Rational Reminder Podcast Hosts:I think it's really hard for us to deal with competing experts. I can remember, I had just done a podcast with Robin Powell in the UK, who's very much into sort of the boring investments. I talked to him about some financial advice that we were being given as a family and all of the counterpoints that that advisor was giving for why the boring investments weren't good. and he just went oh my i understand why it's hard to stand in the presence of somebody who's telling you why this time it's different why this particular complexity of product is important for you and your family to have and i will be behind you to make sure that we get out at just the right time if we need to get out what do i know what i know now is i have probably 7 ,000 more hours of statistics training than that guy ever had, but I didn't have a designation and I wasn't in that role.

1:04:47Rational Reminder Podcast Hosts:And mostly we get just tired and we want somebody to take care of our stuff that we don't want to take care of. Somebody is saying that we could do better and that would make a difference in our life. Those are very compelling words. They don't necessarily activate greed. They activate a sense of responsibility that you should do this thing. I think as just regular consumers, research, research, research. You can find out if your CFP has any regulatory strikes against him or her. That's publicly available knowledge. You can find out who is this person behind the desk at the bank giving you advice and what allows them to be qualified.

1:05:28Rational Reminder Podcast Hosts:The challenge, as we know now, Ben and Carmen, is that it's often hard for people who don't have huge amounts of money to get neutral, good, high-quality advice because they gravitate towards product providers that are incentivized to sell them the products that they have, that they own. So that's an issue. We asked one question earlier about what would be some warning signs. This isn't necessarily for the investor, the consumer. But one of the things that you need to know as a manager is that if your team, which was previously coherent and cohesive, and they all seem to be getting along, is suddenly there's weird stuff going on.

1:06:15Rational Reminder Podcast Hosts:When you're sensing alliances, you're sensing discontent, somebody might be reporting bullying or intimidation, that is a really, really good sign that you have a fox in the hen house. That a psychopath has entered the mix or one of these snakes in suits. You need to investigate because they always cause difficulties in team functioning. So if that's going on as a manager, take note. That's a huge red flag.

1:06:45Dr. Moira Somers:Each of you came into this project with such unique experiences and backgrounds, a tremendous amount of experience, relevant experience to this topic. But what do you think your biggest learnings were from writing this book?

1:06:58Philippa Hann:I'm not sure I could answer that. I would need another hour. There is the importance of relationships within and without the firm, the importance of knowing thyself and doing the work on thyself, the importance of understanding we are all vulnerable. and one thing that we were really aware of as we went through the book was ensuring that people didn't read the book and say well that's okay because I would never do that and I did this through writing this with Moira is to understand where my own personal vulnerabilities are and that we are all incredibly delightfully and wonderfully human and that being kind to yourself is a super important part of your ethical health.

1:07:52Rational Reminder Podcast Hosts:One of the big learnings for me was about something called the illusion of superiority or the better than average effect, which is the notion that we often rank ourselves as being better drivers, better health nuts, whatever. We see ourselves as being higher than average on a number of dimensions, which, you know, you can just sort of laugh at. But there's one domain where that illusion is on steroids, and that is within the domain of morality. None of us want to contemplate the fact that we might just be normally ethical, average ethical. Of course, they're better than that. But the moral humility is something that the regulators, when we came back and we asked all of the people who we interviewed for the book, including you, Cam, about how should one stay ethical.

1:08:45Rational Reminder Podcast Hosts:Almost to a person, everybody said, some version of there, but for the grace of God go I. It could have been me. And I'm just really lucky that life circumstances and the supports around me have helped keep me upright. Moral humility is something to be cultivated, to be welcomed. the second big learning for me is that we have to learn to tolerate being uncomfortable and to not treat it like it's a nuisance but to treat that discomfort as meaningful data that we need to pause and name and explore and then the third learning for me was unequivocally navigate your way to good employment. If you have any sense that something in your firm is whiffy, get out of there.

1:09:37Rational Reminder Podcast Hosts:It will shape you in ways that you won't like, and it will not protect you if the regulators come calling. So find good people to work for. Create your own firm someday if that's what it takes, but navigate your way. Get the best qualifications that you possibly can for the position that you're interested in. Volunteer, network, find people, and keep yourself financially free. Don't let yourself become overextended. Of course, everybody in society is dependent on their employer to pay their mortgage, but work your way up to having some degree of choice over these matters.

1:10:22Dr. Moira Somers:Our final question, how do you each define success in your lives?

1:10:25Philippa Hann:I knew you were going to ask me this question because I've listened to your podcast it was a really interesting thought process as I went through this and I was walking along mulling it over because you know thinking walks are really good and the conclusion I came to was I'm living it I am this is success I have a job that fulfills me that is congruent with my values That feels amazing. I can push things forward. We held a big event the other day about climate change. I can go out there and I can make that happen. That's amazing. I get to have written this amazing book with this amazing woman and ask this deep, deep question that we spent, I think, two and a half years, almost three years contemplating and talking to people.

1:11:18Philippa Hann:I have amazing friends. I have amazing family. I have enough money. I don't lust after the Maseratis of this world. I get to go on holiday. I don't have to add up food as I go around the supermarket. I can give and I do time and money. I am basically living my version of success. And thank you for asking that question because it allowed me to say, I'm living it. I am successful. And that feels absolutely amazing.

1:11:52Dr. Moira Somers:Moira?

1:11:53Rational Reminder Podcast Hosts:You know, it depends on the day. Some days success feels like, I remembered that password finally. But on a more global perspective that Philippa was taking, it has so much to do with having some measure of control. I'm aware of or freedom to choose. And I'm aware of just how much privilege I have in being able to choose some of the things and that in turn, choosing the right things opens you up to having more freedom to make good choices. But for me, it comes down to things like relationships, relationships over achievement wholeness over accumulation i really want to be a safe harbor and a force for good in this world i want to not disappoint the people that matter to me my family my children my friends not that momentary disappointment of no you can't have a cookie but I want to be somebody that they are proud to have known or to be related to.

1:13:05Rational Reminder Podcast Hosts:That alignment between values and action under pressure and the things that could be true of you no matter where you fall on the socioeconomic spectrum, those markers of integrity are what really stand out to me now.

1:13:22Philippa Hann:Can I ask you two a question, if that's all right? Sure. what stood out from the book to you two when you read it the biggest thing for me was just the

1:13:32Dr. Moira Somers:concept of behavioral ethics which i think is a big part of what the book ends up being about i think this idea that we can have a rational ethical framework and people can know what they should do and they can know right from wrong but for various reasons they can still end up doing bad things as we talked about earlier you need to have culture you need to have systems in place you need to check in with yourself and be very in tune with yourself to understand where your vulnerabilities are. But just that concept of just like with other parts of life, we can have rational frameworks for things and we can say what people should do in certain situations, but that's often going to be very different from what they will actually do.

1:14:13Dr. Moira Somers:And understanding where those vulnerabilities are is really, I would argue more important to acting ethically than understanding right from wrong. I actually sent myself a picture, took a screenshot of the moral operating system. I could tell you put a lot of work into that, at least I believe you did. And just to go through that wheel, now you have to spend a little bit of time with it, but it's such a thought provoking. Each one of the pieces of pies on that wheel is pretty clear and can really cause someone to think and it's worthwhile time to be spent. So I thought that was really nice to kind of capsulate everything that was in the book, especially being in the industry.

1:14:53Dr. Moira Somers:It's an interesting read and it's an easy read. So kudos to both of you on this great accomplishment. This was an enormous amount of work, clearly.

1:15:01Rational Reminder Podcast Hosts:Thank you for noting the behavioral ethics part of it, Ben. I think that that's been the part that's been missing for me within all of the financial ethics training is where are people in this? Obviously, I have a bias to that as a psychologist, but the regulators begged us to help people understand that it's their humanity that needs to come into play. And that includes their own biases and things that you can't just will yourself out of. You need to learn how to work with them.

1:15:34Philippa Hann:I love the fact that you're going to go and do the moral operating system work. We wanted to give people something actionable to take away because that behavioral ethics piece does need that.

1:15:46Dr. Moira Somers:And your advice to read this as a study group, I think that's wise counsel.

1:15:49Philippa Hann:Yeah, and we would love to hear from people as and when they do. I mean, we've sent this book out into the world. Our greatest hope is that it actually makes a difference. And I think we said the other day we would have failed if it's made no difference to the world. That's what we want. So we would really genuinely love to hear from people as they run through the book and please do ask his questions.

1:16:10Dr. Moira Somers:Terrific. Well, Philip, great to meet you. Moira, you're a long-term friend. So great to see you again, as always. Congrats on the book.

1:16:18Rational Reminder Podcast Hosts:Thank you so much. Thank you.

1:16:20Dr. Moira Somers:Thanks, guys.

1:16:26Dr. Moira Somers:All right, Ben. Incredible conversation. Pretty incredible book. I think this is going to be widely read and picked up by the industry around the world. I mean, we jokingly were talking before we started recording, I asked them if they were on the proverbial circuit because each fall, at least from my take of the industry, the fall season really ramps up with events. And I think that they should be, and I hope they will be on many stages around the industry for quite a while. As we were talking about that with them, I was thinking that we should be having our teams read this book or at the very least going through the thing that you talked about at the end of the conversation there, Cameron, about creating your own moral operating system, which they give step-by-step instructions for in the book.

1:17:15Dr. Moira Somers:It's pretty cool. I've read it. I have not sat down and gone through the exercise yet, but it's 12 steps, I believe. It is 12. Guides you through thinking through your own moral operating system, which sets you up as we talked about in the podcast to deal with behavioral ethics, to set yourself up, to be prepared to deal with the situations where ethics can lapse. To set you up, but also your organization, both structurally, but also culturally. Systems and culture are huge for this. And you have new people. They talked about what kind of new people and the older people, new people, they just don't know what they don't know.

1:17:53Dr. Moira Somers:So it can be unintentional bad behavior, but older people, depending on the incentive systems, perhaps can cause just the culture. Culture and systems, where you are, who you're surrounded by. I didn't say this when we were talking to Mario and Philippa, but I was thinking it. One of the things that I'm most proud of with what we've created at PWL is that we are the firm where people who want to be sure that they're doing the right thing, they gravitate to us. Whether they're employees coming to work here or peers in the industry who look at what PWL is doing, I at least believe that we have put ourselves in that position.

1:18:29Dr. Moira Somers:Well, I remember the conversation we talked about when one of our advisors joined saying, I just hope it's like how you sound on the podcast. Well, we hear that from clients too, for sure. As far as we know, and we have gotten this specific feedback, we are at least as good or whatever you want to call it as we present ourselves to be on the podcast. Anyways, if you're in the industry, I would argue this is a must read book. I think it's a good read for kind of anyone who's in the working world. And if you're interested in the subject, of course, but certainly if you're in this industry. We also had a good conversation about product providers.

1:19:03Dr. Moira Somers:This goes back to a few episodes we've had and you're talking about ETF slop, for example. Why do advisors choose certain products and how does the industry get pitched certain products. Yeah, there's a whole section of the book. We've got, okay, financial professionals, financial advisors, they can enter into misconduct that harms investors, but you can also have financial product providers who can enter into misconduct or borderline misconduct when they're selling financial products to financial advisors who will then go and sell the product to their clients. And a lot of that comes back to complexity, selling the idea of exclusivity, all that kind of stuff.

1:19:43Dr. Moira Somers:Do you want to give us some more background on Moira? So Moira, as I mentioned in the introduction, she's a clinical neuropsychologist, family wealth consultant, and executive coach. She's Canadian based in Winnipeg. She is an incredible resource for wealthy families and people. She works a lot with advisors, but she also works directly with clients. When we at PWL realize that we are out of our depth from the perspective of psychological issues related to money with a client, we will bring Moira in as a third party and she will engage with clients directly to help them work through those issues.

1:20:22Dr. Moira Somers:So she's been a fantastic partner for us in that sense. A very interesting and unique skillset that she has that she brings to writing this book. Also just her as a professional, She's a fascinating person. And Philippa, who we just met for the first time today, we've known Moira for a long time, but Philippa, we just met, she's a practicing lawyer with 20 years, specializing in financial services litigation and dual qualified as a solicitor and a financial advisor. And she's now recently become the CEO of Paradigm Norton, which is a UK financial planning firm. So she's basically gone from suing financial advisors to leading a financial advisory firm.

1:21:01Dr. Moira Somers:We talked about the large case she did on behalf of British Steel. She regularly speaks in industry events and well-known, certainly in the UK financial planning industry. And they tell at the front end of the conversation, as we know now, how they actually met to decide on writing this book, which I thought was super interesting too. Just kind of two minds meeting at a conference. And there you go. There's the work that comes out of it. They realized they complemented each other in a way that they were going to be able to create some information that was unique, which I think they've been successful in doing.

1:21:32Dr. Moira Somers:Awesome. Anything else to add, Ben? No. I'm kind of tempted to go through the moral operating system steps, but it's probably too much to do in the audio format. I suggest people pick up a copy of the book and go through it themselves. It's a really interesting exercise. I agree. Okay. Great conversation. Thanks, Ben. Thanks to you, Cameron. Thanks everyone for listening.

1:22:17Dr. Moira Somers:Thank you. Nothing herein constitutes an offer or solicitation to buy or sell any security. This communication is distributed for informational purposes only. The information contained herein has been derived from sources believed to be accurate, but no guarantee as to its accuracy or completeness can be made.

1:22:37Rational Reminder Podcast Hosts:Furthermore, nothing herein should be construed as investment, tax, or legal advice, and or used to make any investment decisions. Different types of investments and investment strategies have varying degrees of risk and are not suitable for all investors.

1:22:50Dr. Moira Somers:You should consult with a professional advisor to see how the information contained herein may apply to your individual circumstances. All market indices discussed are unmanaged, do not incur management fees, and cannot be invested indirectly. All investing involves risk of loss, and nothing herein should be construed as a guarantee of any specific outcome or profit. Past performance is not indicative of or a guarantee of future results. All statements and opinions presented herein are those of the individual hosts and or guests,

1:23:16Rational Reminder Podcast Hosts:are current only as of this communication's original publication date and are subject to change without notice. Neither One Digital nor PWL Capital has any obligation to provide revised statements and or opinions in the event of changed circumstances.