Ethics In Financial Services Insights
Seeking Clarity on the Ethical Duty of Lawyers
The question posed to me as the business ethicist on the panel by the moderator, Prof. Robert Barrington, was whether it is realistic to expect that a lawyer, as a professional service provider, should be a guardian of ethics, operating in the public interest? Or are they just technicians, implementing laws made by others?
This ethical duty of lawyers plays out differently depending on the context of the client representation. The U.S.constitutional right to counsel in criminal cases does not extend to civil litigation or corporate transactions. Thus, while criminal lawyers can answer with a resounding “yes” about their ethical duties to represent any client who seeks guidance, the nuances of corporate and civil representation raise distinct questions.
In recent years, globalization together with the rise of global sanctions on financial and business activities challenges law firms to consider whether they will take on as clients individuals and companies considered “corrupt,” or otherwise violating internal business norms or global anti-money laundering (AML) regimes. Personal and corporate transactions such as trust and estates, real estate purchases, or mergers and acquisitions for clients whose funds may be of illicit origins raise unique ethical dilemmas.
As Robert Barrington and Georgia Garrod summarize, the AML laws identify criminal activities as those that are illegal inthe country of origin. Thus, acts occurring in jurisdictions with weak rule of law or limited criminal enforcement result ininsufficient evidence and proof of wrongdoing to address U.S. or U.K. procedures. Addressing this gap in AML regimes,and how it relates to the duties of lawyers, is on the agenda for both governments with upcoming reforms. See, e.g., U.S. Strategy on Countering Corruption (December 2021) (policies will determine whether “key gatekeepers to the financial system—including lawyers, accountants, and trust and company service providers—cannot evade scrutiny”).
Moreover, the rules of professional responsibility provide limited guidance in the context of civil law, leaving a vacuum to be addressed by lawyers on a case-by-case basis. Lawyers and law firms therefore need to clarify their ethical duties based on corporate and personal values. For instance, when does substantive representation of an otherwise unseemly clients help a client stay on the right side of the law, versus situations where they are thwarting the law? How do we define what is in the public interest?
Importantly, firms and leaders need to create environments where it is common and appropriate that lawyers, from junior associates to senior partners, raise ethics concerns about the balance between access to justice and those representations that may in the long run thwart justice. While lawyers may be trained to argue “both” sides of an issue, in practice, personal and professional ethics can guide which representations they wish to pursue.
The short answer to Professor Barrington’s question about the whether lawyers can be guardians of ethics is yes, they can and should be, but we have some work to do as a legal community to identify the right guidance and processes to embrace this role.
Reprinted with permission from the January 2023 edition of the “New York Law Journal,” © 2023 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited. Contact 877-256-2472 or reprints@alm.com.
Ethics In Financial Services Insights
It’s a Matter of Trust
Filabi also serves as the executive director of the American College Maguire Center for Ethics in Financial Services. The interview focuses on the findings of the Center’s “Trust in Financial Services” research, published in 2022.
![t’s a Matter of Trust](/sites/default/files/inline-images/cb15-itsamatteroftrust.jpeg)
This column was originally published in the Journal of Financial Service Professionals, Vol. 77, no. 2, pp. 37-39. Copyright © 2023 by the Society of Financial Service Professionals. All rights reserved.
Good v. Bad Debt: What's the Difference?
Except when it’s not.
Sometimes, it’s smart to take on debt. In fact, there are times when we don’t have any choice. Let’s take a closer look at debt — the good, the bad, and how to tell the difference.
Student loans
Borrowing money to finance a college education is a prime example of good debt. It’s not about buying a product that will depreciate, it’s about making an investment, one that will pay itself off, hopefully, many times over.
And there are numbers to back it up.
The difference in lifetime earnings between college and high school graduates is estimated to be $1 million. Other forms of educational debt, like the debt you take on for occupational training or to gain additional skills that advance your career, can also be considered good debt.
Even though student debt may be “good,” you should still weigh your options before you take it on, whether for yourself or your children. To begin with, there's a big difference between tuition at a public university versus an elite private school. Is it worth it? Maybe yes, maybe no. That’s for you to decide, based on factors such as:
- How much you’ll need to borrow.
- The field that you (or your child) will enter.
- Your existing financial obligations.
There are also signs that help may be on the way. With U.S. student debt at a record $2.6 trillion — second only to mortgages and more than credit cards and car loans — policymakers are debating how to make higher education more affordable. Plans range from free public college for all to generous loan repayment programs tied to income.
If any of those ideas become a reality, good student debt will get even better.
Home mortgages
While a mortgage doesn’t increase your earnings potential, being a homeowner can provide some financial benefits. Your monthly mortgage payments go towards building an asset — home equity — and not to a landlord.
Taking out a mortgage is often the only route to homeownership. Although the average age of first-time homebuyers is on the rise (the median age was 33 in 2019), few of us can buy our first home with cash.
Even if you could purchase a house with cash, there are compelling reasons not to. Currently, the interest on a 30-year fixed rate mortgage is at or around 4%. Compare that with the S&P’s annual return, which averages around 10% for every 30-year period since 1926. Instead of having your cash tied up in an illiquid asset — your house — you come out ahead by investing that money in the market.
But, as with student debt, potential homeowners have choices to make.
While it’s true that you have to live somewhere, does it have to be in a $1 million home, or would a house at half that price do the trick? Even with the housing crisis in our collective rearview mirror, an estimated 40 million Americans are “house poor” — living in a home they can’t afford.
The takeaway? You have to consider multiple factors before you determine if a particular debt is good for you.
Small business loans
Small business loans may represent more of a risk than other types of good debt— given historical success rates of start-up ventures — but they’re considered “good” based on the same assumption as student loans: You’re investing in yourself.
The risk of these loans is balanced somewhat by the process you need to go through to get them. Whether you’re looking to borrow from the U.S. Small Business Administration or a bank, you’ll need to meet certain requirements, including personal and business credit scores. The SBA requires you to submit a detailed business plan with your application, so you’ll need to research your industry, identify risks, and set realistic goals.
One thing is becoming clear: As much as we would like to define good or bad debt in absolute terms, the truth is more gray than black and white.
New car loans
We’re definitely in a gray area when it comes to new car loans.
Having reliable transportation can increase your access to employment, so you could argue that car loans enhance your future earning potential. And for most of us (for better or worse), having a car is a necessity for daily life.
On the other hand, your first drive out of the dealership in your new wheels is the most expensive trip you’ll take: Cars depreciate at an average rate of 20% in the first year, and 15% a year after that. If you take out a 5-year loan on a new car, you could be “underwater” before the end of the term, meaning you owe more than the car is worth.
The good news? You have options. You can choose a $35,000 workhorse or an $85,000 show horse. If you buy a late-model used car with low mileage, the original owner takes the biggest depreciation hit. If you must have that new-car smell, try keeping your car after you’ve paid off the loan and putting that monthly payment into a savings account. That way, you can buy your next car in cash or put down a larger deposit and reduce your payments.
Either way, you’re in the driver’s seat.
Credit cards
Regularly putting major expenses on credit cards is seldom a good idea, especially cards that lure consumers with interest-free initial offers and high credit limits.
Although the average U.S. credit holder’s 2019 balance of $4,293 represents a lower percentage of disposable income than it did during the Great Recession, credit card interest rates have never been higher — 17.41% and counting.
One problem with credit cards is their ease of use. The ability to pay with smartphones and other devices makes things even worse. And there’s online shopping, which elevates instant gratification and retail therapy to an art form. Try limiting yourself to a debit card that’s connected to your checking account, so you can only spend what you actually have.
If you don’t need it, and can’t afford it, don’t buy it.
Payday loans
While credit card debt is not good, payday loans are even worse. Many workers turn to these lenders out of desperation — for example, to cover a car or home repair —which is never a good time to take on debt.
Although the interest rates these “cash advance” lenders charge may seem manageable, they’re for shorter terms, usually until the next paycheck in two or four weeks. But on an annual basis, payday loan rates translate to an APR of 391%.
The advice here is simple: Avoid at all costs.
In the end, it’s about smart choices
Like all major life choices, the decision of when and how much debt to take on — and for what — is complicated. Where are you in your career? How secure is your income? What are your financial obligations? Do you have a rainy day fund in place? Are you saving enough for retirement?
One way to make it simpler is to ask yourself one question: What will this particular purchase mean to me in 15 years?
How you respond may give you the answer you need, if not the answer you want.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
How Often Should You Adjust Your Investment Portfolio?
Whether you did it yourself, consulted an advisor, or used your company’s 401(k) online planning tool, you had to answer some basic questions, including: what’s your risk tolerance?
Do you remember your answer?
Most of us invest for the long-term. We save to prepare for life’s big-ticket items, such as buying a home, starting a family, paying for college, and securing our retirement. While those priorities aren’t likely to change, our tolerance for risk probably will.
So, whether you remember your answer or not, it makes sense for you to revisit your risk tolerance and adjust your investments accordingly. But how often should you do that?
As with most financial questions, there’s no clear-cut answer. However, there are some guidelines to help you make the best choices for your situation.
What does it mean to balance your portfolio?
A portfolio’s ratio of stocks to bonds is directly related to risk and reward: the higher the percentage of stocks you hold, the more risk you take on in order to increase your chances for higher returns. Over time, the stock market will probably outperform the yield on bonds, but not without some fluctuations along the way.
Generally speaking, younger investors are willing to take on more risk. While there’s no standard rule of thumb, a mix of 80% stocks and 20% bonds is aggressive, but not overly so. With time on their side, a younger investor can feel confident that the rewards of stocks outweigh their risks.
But for someone close to retirement, that same 80/20 mix may be too risky. If there’s a downturn in the market, there may not be time to rebound, especially as the investor will be drawing down that portfolio when they retire. In that case, a ratio closer to 60/40 would more closely align with the investor’s risk tolerance.
Takeaway #1:
It’s logical to assume less risk as you get older.
But the question remains, how — and when — should you adjust your portfolio?
Sell high and buy low or play the hot hand?
Suppose you have a portfolio with 80% stocks and 20% bonds. And let’s say that one of your stocks is doing so well that your ratio is now 85% stocks and 15% bonds. Should you reassess your position?
If you want to maintain your original ratio — and don’t forget, those aren’t just numbers, they reflect your risk tolerance — the answer is yes. The conventional wisdom on how you do that may surprise you: sell your high performing stock and put that money into bonds to get back to your 80/20 balance. Yes, you read correctly: sell what’s making you money and buy more of what isn’t.
There's a solid rationale behind this strategy. If that one stock represents too much of your portfolio, you’re putting yourself at risk if the price plummets — the “too-many-eggs-in-one-basket” problem. This tactic also forces you to practice the “sell high, buy low” philosophy that many of us agree with but few of us follow. That high-performing stock is going to peak at some point, it’s just a matter of when.
This is a different way to think about risk and reward. What would make you feel worse: selling a stock that continues to perform well, or holding onto a stock that starts to drop?
Takeaway #2:
The gains you make with your investments are literally money in the bank. Focus on that and not on what could have been.
Practice oversight, not micromanagement
Like being a good parent or a successful boss, avoid micromanagement when it comes to your investments. Even in the best of times, financial markets fluctuate. Events will occur that you have no control over, from pandemics to political upheavals. Unless your livelihood depends solely on the stock market, don’t pay too much attention to the short-term bumps in the road.
A smarter approach is to monitor significant changes in your own life. If you win the lottery, you should definitely take a hard look at your asset allocation. The same holds true for more realistic occurrences such as a change in marital status, an unexpected inheritance, or a sudden change in your health.
You can also take solace in a Vanguard study of stock and bond performance since 1926. While it’s true that stocks historically outperform bonds, allocation shifts don’t make that big of a difference in the long run. For example, a 60% stock/40% bond allocation during that period yielded an 8.6% average annual return, while an 80%/20% split yielded 9.4% — not significant enough to keep you up at night.
Remember it’s a marathon, not a sprint
While we all want to get the most from our investments, we’re better off taking the long view. Riding a rollercoaster can be thrilling, but it’s not without cost and it’s certainly not for everyone.
It’s fine to set up a regular schedule to review your portfolio. Most financial advisors meet with their clients at least annually. You can go over your position, ask questions, and discuss your options. If your portfolio’s balance shifts 5% or more, that’s a signal to take a look at your allocations, but you may or may not decide to do anything about it.
Don’t worry about quick wins or big payoffs. Instead, enjoy the peace of mind that investing in your future brings.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
Special Needs Planning Insights
A Guide to Government Benefits for Families With Special Needs
For example, the advocacy organization Autism Speaks estimates the lifetime cost of caring for a person with autism at $1.4 million. That cost can almost double if the person is impacted by an intellectual disability (having an IQ under 70).
Most families don’t have the income or personal savings to meet these challenges. That’s why it’s essential to take advantage of all the government benefits that are available to assist families caring for a loved one with special needs.
If you are caring for a family member with special needs, make sure your financial planning includes these government programs.
Supplemental Security Income Benefits
Supplemental Security Income (SSI) is a federally funded program administered by the Social Security Administration (SSA).
Blind or disabled children and adults are eligible for SSI benefits, as are adults 65 and older who meet the program’s financial criteria.
The SSI definition of “disabled” is different for children and adults.
For children:
- The child must have a physical or mental condition(s) that very seriously limits his or her activities, and
- The condition(s) must have lasted, or be expected to last, at least one year or result in death.
For adults:
- The adult has physical or mental condition(s) that results in the inability to do any substantial gainful activity and can be expected to result in death, or
- The condition has lasted, or can be expected to last, for a continuous period of 12 months or more.
Visit the SSI homepage for information on the program and on how to apply. Also, know that the Social Security Administration will:
- Help you complete your application.
- Make an appointment and pay for a medical exam if the information you currently have isn’t sufficient.
- In some cases, pay for your travel to the exam.
Social Security Disability Insurance
Social Security Disability Insurance (SSDI) is an earned benefit funded by the Social Security tax fund and targeted to people whose physical or mental impairments prevent them from engaging in their normal occupation or other work. That means, even if an individual meets the SSI definition of disabled, that person must have sufficient Social Security work experience to qualify for payments.
The program includes the Disabled Adult Child (DAC) provision, under which an adult disabled before age 22 may be eligible for child benefits if a parent is deceased or starts receiving retirement or disability benefits. This is called a “child’s benefit” because it is based on the parent’s Social Security earnings.
The SSA website provides this example of a DAC benefit:
A worker starts collecting Social Security retirement benefits at age 62. He has a 38-year-old son who has had cerebral palsy since birth. The son will start collecting a disabled "child's" benefit on his father's Social Security record.
In this case, the adult child is eligible even though he has not worked or contributed to Social Security. Adult children who work can still receive benefits as long as their earnings remain below a level the SSA considers “substantial,” which in 2020 was set at anything over $1,260 a month.
Check out the SSA guidelines to learn more about SSDI benefits, eligibility, and application process.
Get professional support
The SSI and SSDI benefits are just some of what’s available from the government to assist families with special needs. Medicare and Medicaid include provisions that can provide additional financial assistance.
Even though the SSA website is easy to navigate, these benefits can be complex and challenging to understand. One of the best ways to ensure your loved one receives all their eligible benefits is to work with an advisor who has professional credentials and experience working in special needs planning.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
It's Never Too Late (or Early) to Save for Retirement
If you’ve put saving for retirement on the back burner, here is some good news: It’s never too late to start. And it’s never too early, either.
There are reasons why retirement planning is a touchy subject. In Northwestern Mutual’s most recent Planning & Progress Study, an annual survey of national attitudes and behaviors about money, they found that 22% of Americans have less than $5,000 in retirement savings, and 15% have no savings at all. That’s actually an improvement from the previous year.
But this isn’t about guilt trips or alarm bells. This is about starting or improving your retirement strategy so you will be financially set for the long term.
While strategies will change depending on your situation, retirement planning is all about looking to the future. For that, there’s no better time than the present.
Why it’s never too late
If you’re in your 50s and don’t like what you see in your retirement account, consider these course-correcting steps.
- Make your 401(k) your savings priority. If your employer offers a 401(k) or 403 (b) plan, participate, or up your participation if you’re already involved. If there’s an employer matching contribution, try to contribute up to that amount. Matching contributions are meant to incentivize savings, so take advantage: It’s free money in your pocket (actually, in your retirement savings account). And because your contributions are pre-tax, you'll see additional benefits when tax season arrives.
- Take advantage of the IRS catch-up contribution. Believe it or not, the IRS is on your side, at least when it comes to your retirement. The annual limit for tax-free contributions to 401(k) and similar plans was raised to $19,500, and those over 50 can contribute an additional $6,500, up from $6,000 in 2019. Those 50 and older can also make an extra $1,000 tax-free IRA contribution on top of the $6,000 annual cap. See the IRS website for specific catch-up contribution details.
- Consider extending work and delaying Social Security. If you always envisioned retiring at a certain age — say 65 — it may be worth rethinking that. Start positioning yourself now for work you would enjoy doing for a few years after your current job. Retired workers are increasingly valued as consultants and mentors. If that interests you, lay the groundwork now. At the same time, consider delaying taking your Social Security benefits. Every year you delay until age 70, your benefits increase by 8%. If you do take on a “post-career” job, you may find that 8% ROI enticing and doable.
- Rethink your financial commitments. This may be difficult, especially when it involves those close to you. For example, you may have always intended to pay for your child’s college education. But, the truth is, your children have a lifetime to pay off (a reasonable amount of) student loans; your timeframe for retirement security is a lot shorter. Some more good news: There’s currently a lot of discussion about college affordability and free tuition, which could help make this decision easier.
Why it’s never too early
It’s tempting to think that younger generations have it “easier” when it comes to retirement savings. Time is certainly on your side if you’re in your 20s. But that luxury can also be a disadvantage if it leads to procrastination. Instead, keep these guidelines in mind.
- Get in the habit. Most of us are creatures of habit. The challenge is to develop more good ones than bad ones. If you get in the habit of saving for retirement early on, you’ll increase the chances that you’ll stick with it throughout your working life. As with older investors, take advantage of 401(k) plans and employer matching contributions. With your longer investment window, you’ll benefit from the compound interest — interest on top of interest — that can turn modest lifetime savings into a secure retirement nest egg: Annual savings of $4,500 over a 45-year career can turn into $1 million in retirement. With an employer match, you could save as little as $2,250 a year to reach that goal.
- Make it automatic. Use automatic payroll deduction to support your good habit: If you don’t see the money, you won’t miss it. At the same time, add to your retirement contributions as your salary increases, a benefit to your retirement and your tax bill.
- Reassess your investments. Regular, automated investing isn’t the same thing as neglected investing. Being a life-long investor means that your life circumstances will change, and your financial priorities and risk tolerance will change along with it. Set up regular intervals to make sure that the investments you have match your goals and situation. Consider engaging a financial advisor as your wealth increases.
- Resist temptation. One downside of investing early is that there will be more instances where you’ll be tempted to use your retirement savings for some other purpose. There may be severe cases where that becomes necessary. In all other cases, just say no.
Why you should start now
Because something made you read this post, and you’re older now than when you started reading it.
Because you deserve a great life in retirement.
Because it won’t be any easier tomorrow.
If you need additional motivation, consider contacting an advisor who specializes in retirement planning. Like working with a personal trainer, the support of a professional can be what we need to get us to where we want to go.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
How Much Do You Really Need in Retirement?
To paraphrase the immortal Yogi Berra, “It’s tough to make predictions, especially about the future.”
Investing in your retirement requires you to not only predict the future but to make financial decisions based on those predictions. How can you make the most informed decisions about your long-term financial needs, regardless of your age or when you plan to retire?
One common way is to use free online retirement calculator tools. Unfortunately, some of these tools are hosted by financial investment firms looking to promote their services. If you prefer to avoid that, use calculators provided by organizations like AARP. But even the best calculators have their drawbacks because, despite being a good way to get you thinking about what you need — and what you might need to do differently now to get there — they’re based on general data and the law of averages, not on you.
To get a better sense of your retirement, go beyond the numbers and get to the fundamentals.
Focus on the constants
You may not know everything about what you’ll need in retirement, but you’ll need to cover the basics, so start there.
- Housing. Here’s where knowing your preferences can help you get more specific with your projections. If you’re a homeowner who plans to age in place, will your mortgage be paid off when you retire? If so, that’s great; just remember to account for ongoing maintenance, insurance costs, and property taxes. Consider modifying your home as necessary now while you have a regular income, or downsizing to a more manageable — and less expensive — house.
Retirement communities are another option. Choices range from individual apartment living to 24/7 care in a skilled nursing setting, and costs vary just as widely. If this is your picture of retirement, price options in your desired location. In a best-case scenario, the money you get from selling your home can cover a significant portion of your future housing costs.
- Healthcare. According to the Employee Benefit Research Institute, health spending constitutes 8% of expenses for those aged 50 to 64, a figure that rises to 11% for those over 75. It’s essential to account for that increased spending. If you’re currently enrolled in a plan through work, find out what happens when you retire. You may have options to continue with the group plan, or you may have worked at your job long enough to become vested in certain benefits.
All Americans are eligible for Medicare when they turn 65. Unless you’re getting Social Security, you need to enroll at that age. Medicare will cover about half of your healthcare costs. You’ll need to supplement the plan with private coverage or with the public Part C or Part D. Research the program at medicare.gov and explore the available options and costs.
Factor in geography
Certain parts of the country will be more expensive retirement destinations than others. You’ll need more money to retire in San Francisco than you will in Duluth.
There are factors to consider beyond the obvious cost-of-living items like housing. For example, some states tax Social Security benefits. Check out property taxes and see if any programs exist for homeowners over 65. If you have a sizable estate, be aware that six states currently collect an inheritance tax and 12 collect estate taxes. Because some exemptions apply, it’s worth researching your intended location to learn how these costs could impact you and your family.
Play the percentages
Let’s face it: One of the reasons retirement planning is difficult to talk about is because it forces us to think about the other inevitable thing in life besides taxes. But having a reasonable sense of your life expectancy can help you avoid the two major retirement nightmares — running out of money or cutting corners unnecessarily.
The good news is that people who reach retirement age can expect to live longer. According to the Social Security Administration, men and women who reach age 65 live to ages 84 and 86.5, respectively. With one in three 65-year-olds living past 90 — and one in seven past 95 — a third of your life could be in retirement.
Balance those odds with your personal health and family history. If you’re married, talk with your spouse about their expectations. If you or your spouse are dealing with an ongoing medical condition, you may want to include long-term care insurance in your retirement plan.
The good news is, you don’t have to do all this planning alone. Consider talking with a financial advisor who has expertise in retirement planning. After all, these are meant to be your golden years, and you’ve worked hard to make them that way.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.