Life & Viatical Settlements
Chapter 7
Life & Viatical Ethics
Viatical Settlements have seen much recent legislation. While legislation can happen for many reasons, consumer harm is a major reason it occurs. In the case of viaticals, there are two groups of consumers: those who sell their policies and those who invest in the life insurance contracts.
Since ethics are a matter of perception, the study of ethics is not always a simple process. While we would hope laws are ethical, laws may not be perceived as such by some groups of people. For example, our history is full of laws that protected some groups while discriminating against others. That is why we have laws that protect children (remember the clothing factories and child labor issues?), voting rights (women marched for the vote and the right to own property independent of their husbands), people of color, the disabled, and more recently, gays who hope to marry their partners and receive equal spousal employment benefits as their straight counterparts.
Ethics are seldom black-and-white although many groups would have us believe otherwise. Since ethics are defined as perceptions of right and wrong, it would seem that any action could only be right or wrong. For example, we have laws against killing another person yet send our troops into situations that force them to kill others. There are many examples where ethics are not a black-and-white, right-or-wrong situation.
Consider the following questions:
Is it wrong to steal?
If you are starving is it wrong to steal food from another to ease your hunger?
If your child has not eaten is it your ethical duty to feed him or her, even if it means stealing from another?
If you feel it is your ethical duty to feed your child, would that same ethical duty apply to your neighbor’s hungry child?
If your answer is “yes” to feeding your neighbor’s child, what defines your neighbor? Must he or she live beside you, on the same block, in the same town, or in the same country?
6. What is the geographical cut-off for feeding a neighbor’s starving child? Does it extend to your neighboring country (Canada and Mexico)?
Let’s assume you said it is wrong to steal. If you were starving is it your ethical responsibility to first try to earn some food or ask permission to take food?
If you are refused food, is it then still wrong to steal food regardless of how hungry you are?
If you have a hungry child and no avenue for earning food and no person willing to share food, where does your ethical duty lie?
To your ethical belief that it is wrong to steal, or
To your starving child that is looking to you for nourishment?
Parents certainly have a moral duty to care for their children. Are there alternatives to stealing food? Could you give your child to foster care, for example, rather than stealing food? If you positively believed that foster care was harmful in some way, are you acting immorally to place your child in harm’s way so that he or she is fed?
What duty do you owe to your neighbor’s children? If you noticed a child from your neighboring apartment stealing another’s milk from a doorstep, should you report the theft or provide the child with food? If the child is not from your neighbor’s apartment but rather from a building across the street, does that change your moral duties? If the child is a different race than you, or speaks a different language, does that relieve you from your ethical obligation?
If you feel you have an obligation to any starving child, is that moral obligation extended to the child’s parents? If the child is hungry, it would be a natural conclusion that the parent is too. Where does your obligation end? Must the entire family be fed and for how long? At what point does your obligation end and theirs begin? Are you simply allowing the adults to continue in a self-defeating lifestyle by continuing to feed their family?
Would you feed a starving cat or dog that showed up at your door quicker than you would a dirty, thin man that knocked asking for food?
Most of us are lucky enough to have enough to eat, so we can say it is wrong to steal and truly believe it. It is very easy to see only what is before our eyes, never knowing “the rest of the story,” as the saying goes.
Ethics are only black-and-white when all is going well. People are most likely to feel ethical and express their values when their current lives or status are not threatened.
We are not saying it is acceptable to steal, lie, or cheat. Obviously, the point of this chapter is the opposite; we advocate honesty in all viatical and financial aspects, regardless of the representative’s personal circumstances. However, we feel it is important to understand the difference between actions for personal gain and circumstances that may represent more than a simplistic right-or-wrong view.
Most people are not totally honest. While we may declare our ethical standards, and believe we are following them, we still copy a musical CD for our friend, depriving the artist of their legal commission. We feel little remorse when dodging the tax bullet. We bring home items from our employer that does not belong to us.
There are always ways to rationalize these small unethical acts. Perhaps we simply ignore the implications of these actions. I guess it could be asked: at what dollar amount does it change from “unimportant” to “important” stealing? Is taking a box of ink pens less important than embezzling money from our employer? Does it make a difference if our employer is a large insurance organization or a small brokerage or viatical firm? Is the wealth of our employer applicable to what we take without permission?
In a truly black-and-white society, there would be no moral or ethical difference between the man that stole a loaf of bread to feed his hungry children and the man that robbed a bank. The concept is very black-and-white: if you don’t own it and you take it, you are stealing.
Studies have shown that 90 percent of the American population lies every day. Most probably are insignificant (“of course I like your new hairstyle”). Some lies seem to flow through our daily conversations, ranging from an attempt to fit in with the group to what we accomplished during the day. These lies do not affect others and are seldom meant to be malicious. They mostly make the teller feel better about themselves.
Conversational lying is one thing; lying to deprive another of funds, security, or lifestyle is in an entirely different category. The retiree won’t be harmed by an agent who lies about the car he or she drives, but will be harmed by a persuasive lie that causes an unwise investment.
Some of the states demonstrate their view on the need for viatical morality by requiring a business character report prior to issuing a license to work in the viatical field. A “business character report” is a statement certified by an independent third party that has conducted a comprehensive review of the individual seller’s background. They certify that the biographical information provided in the report, as completed by the applicant, has no inaccurate or conflicting information. An independent third party is one that has no affiliation with the applicant and is in the business of providing background checks and investigations for multiple companies.
Depending upon the state, the commissioner’s office may need to see all viatical settlement contracts and disclosure statements that will be used for the viatical investments. These would include those that need to be approved, but also any that were previously used or approved. A copy of the provider trust will also need to be submitted with the application.
Since viatical settlement contracts were used prior to state regulation, a report of any civil, criminal, or administration actions taken or pending against the viatical settlement provider in any state or federal court or agency, regardless of the outcome may be required along with the application. This would include all actions in all states, not just the domicile state.
Like insurance agents, in many states viatical settlement brokers must obtain continuing education. States may not necessarily have the same education requirements, but all will have the goal of participants who understand the products they sell and an understanding of their ethical requirements while doing so. If the states adopt education requirements in the NAIC Model or the NCOIL Model, brokers must obtain 15 credit hours per licensing period.
Viatical ethics are primarily a willingness to follow the laws of the domicile state, regardless of whether or not the participant agrees with them. There are some areas of ethics that do not require agreement, but when it comes to investments, agreement is not an option. The federal and state laws rule all conduct of the participants. Because all laws must be followed, the viatical firm and their associates must be aware of their state laws (how else could they follow the requirements?).
Acceptable continuing education often means completing courses that have been approved by the state in some capacity. If acceptable to the state, a nationally recognized designation program may provide the education as long as it meets the necessary viatical criteria. In some states viatical training may also provide education for other licenses, such as the type held by insurance agents. This should not be assumed however; licensed insurance agents can check for dual credit with their state insurance department.
A person may not meet his or her viatical education requirements prior to obtaining the initial viatical settlement license in most cases. Viatical settlement brokers may not usually take the same continuing education course twice and receive the credit twice in the same CE reporting term. This is true even if the same course was taken in a classroom and again over a website. If it is the same course credit may not be utilized twice for purposes of renewing a license.
For example:
Vicki is a viatical broker. She attends a seminar that she feels is especially good. The first time she attends she receives a CE training completion certificate for her attendance. Since the course was so good, Vicki decides to repeat it a few months later. Although the course instructor may give her a second certificate, it is unlikely that her state will give her credit for attending both seminars. States assign an education number to state approved courses. If the second course is the same as the first, the CE number will be the same both times she attended; therefore, she could turn in the certificate only once within the same licensing renewal period.
Ethical Goals
Everyone needs to have a goal, even viatical brokers and providers. Each of us must include an ethical goal in our lives if we are to stay on a moral path. Ethical salespeople are just as successful as the unethical so why do we hear so much about the crooks? The primary reason may be the impact the unethical provider or broker may have on those who invest in viatical contracts. It is not news when Ivana Investor does well and experiences a positive yield on her viatical settlement contract. It is news if she is the victim of fraud in the viatical process. Not only is it news, it is necessary to report the news so others do not also fall victim to the same company or investment vehicle.
At one time there was a billboard in Houston, Texas that asked: “Whatever happened to personal responsibility?” The answer is simple: each of us still has responsibility – even those who refuse to accept it. Refusing to act responsibly does not remove the requirement.
Viatical brokers and providers have a responsibility to the other viatical participants along with their other professional responsibilities. In fact, that may be why the reader is completing this course: it is their professional responsibility to do so. Even without federal or state requirements, however, professionals will still read product brochures, news articles, and industry magazines, striving to learn more about their chosen industry. That is part of our personal responsibility as industry professionals.
It is hard to understand how individuals can commit some of the past fraud we have seen in the viatical industry. In April 1997 four people were charged with viatical fraud. Sixteen hundred people who invested as high as $300,000 lost a combined total of $95 million dollars to Personal Choice Opportunities (PCO), based in Palm Springs, California. PCO was so convincing that even viatical brokers invested their own money, expecting up to 25 percent yields on their investments. Not a single life insurance policy was purchased. PCO invented viators and their medical history and even the insurance policies they were supposed to have purchased.
Some investors did receive returns, but most received nothing. The principal, David Laing and his partners received most of the investments. Laing used more than $30 million personally, including $10 million he spent gambling in Las Vegas.
It is not easy to recognize the legitimate company from the bogus viatical company. PCO used an escrow trust company as one would expect; they employed Escrow Plus of Burbank, CA. Unfortunately for the investors, Escrow Plus was a participant in the investor deception.
How did so many investors get caught in PCO’s Ponzi scheme? One of the company’s principals was on many radio programs promoting the viatical settlement product as an untapped investor market, so many investors probably came as a result of those appearances. PCO had a web site, which also drew investors. However, many came through referrals who believed the company was legitimate, including insurance brokers who recommended these viatical settlements to their clients. Many of the investors purchased PCO viatical settlements on the advice of their investment advisor (through First Securities USA).
Personal Choice Opportunities is not the only company that used viatical settlement investments to commit financial fraud. The Securities and Exchange Commission charged Mutual Benefits Corporation (MBC) from Florida with fraud. Considered one of the largest viatical companies, they agreed to settle the charges without having to either admit or deny the charges. They were charged with selling unregistered securities and misrepresentation.
Not all companies committed fraud, but they still experienced loss of investor funds. Dignity Partners, considered a leading viatical company, was well respected in the industry and the first viatical funding firm listed on the stock market.
Just a month after they went public the Vancouver AIDS Conference was held, announcing the trial runs of a new 3-drug combination that included protease inhibitors. The drugs were able to wipe out detectable levels of the HIV virus in AIDS patients. This was the first therapy that had the potential to improve life and lengthen the life spans of AIDS victims. At that time, AIDS was considered a death sentence.
Individuals with AIDS comprised 95 percent of Dignity Partners insurance portfolio. The company stock price dropped by 31 percent almost immediately. Within a few months, their stock was down 77 percent. Although they suspended additional purchases, within a year the company folded. A class action lawsuit followed on the charge that Dignity Partners violated federal securities laws. The lawsuit also claimed the company had knowledge of protease inhibitors but failed to take them into consideration. Whether this amounted to negligence or simply short-sightedness, underwriting is a major responsibility of viatical providers. Of course, the class action lawsuit was much more complicated than we will take the time to cover, but it demonstrates an important point: viatical settlements contain investor risk.
Viatical firms also face risk: viator fraud. In this case individuals purchase life insurance by making false applications. They omit known information and may even have an imposter pose as them for any required medical examinations. If the insured dies after the incontestability clause, the insurer may take the case to court, but there is no guarantee the insurance company will win, since it is generally felt insurers have an obligation to pay past the incontestability clause. It may, however, delay payment to investors, sometimes for years. Today most insurance companies require the applicant to show photo proof of identity when taking medical tests for the purpose of obtaining life insurance.
Unfortunately, insurance agents have also promoted viatical fraud. Obviously, no amount of ethic training will change how these agents do business. In the early days of viatical settlements many agents helped AIDS victims obtain life insurance policies for the purpose of selling the contracts to viatical firms. This defrauded the viatical firms and their investors.
Anyone who works in the viatical field has an obligation to understand it inside and out. Of course, this is true for many industries but it becomes especially important when mistakes, even if unintentional, can cost the investor thousands of dollars in lost funds.
Obligation is really just another word for accountability. This can include many things but education is certainly at the top of the list. Any person who does not fully understand the viatical settlements he or she is representing has the potential to financially harm others.
Accountability can be a trickle down effect. If the company owner or manager is accountable, his or her employees are much more likely to be as well. If the viatical firm is misrepresenting any aspect of the viatical process to their sales staff, this misrepresentation will be carried on to the viatical investors. Only a well educated representative will be able to protect themselves from the misrepresentation, even if unintentional, of the viatical company.
Being fully informed is a personal responsibility. The person who understands his or her viatical industry is more likely to stay well informed and ask the necessary questions. Just asking the questions may not be enough however. When the answers do not seem correct or adequate, the responsible representative must step away, even if it means giving up income. In severe cases, he or she may even have an obligation to notify the proper authorities of possible industry improprieties.
Promoting Ethical Activity
Everyone says they want our society to be ethical, protecting those who are unable to protect themselves. It would be best if each viatical participant behaved ethically without legislation, but the past has shown this to be unlikely. There will always be some who value money more than ethical conduct. There will always be some who let greed overtake their values.
It may be impossible to legislate ethical values, but they can legislate how certain industries conduct business. Conduct may not be legislated under the title of ethics, but consumer laws are one way the federal and state governments attempt to ensure ethical activity. Governments have no way to instill ethics in viatical participants; their only available course of action is consumer legislation aimed at promoting ethical business practices. There will always be some individuals who ignore the intent of the law, and there will always be federal and state officials who prosecute the offenders. The majority of viatical participants will follow the laws, so in this way ethical conduct is primarily maintained.
In the long run, it pays financially as well as personally to be ethical. Those who plan to stay in the viatical field will do better financially when they are ethical. The unethical individual may do better financially for a short period of time, but eventually they must either move on to another industry or risk discovery and resulting legal problems.
For many people, being ethical is important personally; it is a matter of pride. Our actions are a reflection of who we are as a parent and as a member of the community; we want to be proud of the choices we have made. Each person will have their individual reasons for their own code of ethics. It is not possible to sit on the fence when it comes to ethical behavior; either you are ethical or not – there’s no in-between. Your actions will also define who you are to your friends and business associates.
Following the Law
From a purely practical standpoint, each viatical representative must know and follow their state’s laws. Many states are implementing specific educational requirements in an attempt to dispel the old “I didn’t know” response when caught disobeying the law. Many states include in their viatical education requirements a chapter like this one on ethical conduct. While it is hard to believe an individual does not know it is illegal to cheat another, having formal education requirements puts personal responsibility on each viatical participant.
Ethics in the Workplace
Regardless of our occupation, each of us faces ethical issues every day. When any given profession deals with a commission base, this seems to be especially true. Ethics could be talked to death and frankly, talk is not worth much. It is actions that really tell the true story. The bottom line is fairly simple when it concerns industry ethics: each individual is responsible for understanding what is acceptable and following applicable laws. Additionally, there should be a strong “do no consumer harm” philosophy.
Consider the definition of ethics:
eth'ics (eth'iks) n. pl. (1) the principles of honor and morality. (2) accepted rules of conduct. (3) the moral principles of an individual. - eth'ic, adj. pertinent to morals.
The New American Webster Dictionary
Ethics: the principles of honor and morality. That seems like a fairly simple statement, but what does it mean to a viatical representative? It certainly means being honest in all viatical transactions.
Ethics: accepted rules of conduct. Rules of conduct apply to following all federal and state viatical laws. From an ethical standpoint, this would mean knowing what those laws are, since that is the only way to be sure conduct is proper.
Ethics: the moral principles of an individual. Each person establishes their own set of values or moral principles. These ethics determine and define who we are as individuals.
It Is Always Wrong
The study of ethics is complex with many philosophies by many brilliant men and women who have studied human nature. It is the abstract view of what is right and wrong with few absolutes and many varied definitions. We can simplify it when it comes to finances however:
It is always wrong to deceive another into investing without first providing full disclosure of the risks involved.
It is always wrong even if you think you will lie “only this time” or deceive another “only once.” Even if you perform ethically a thousand times, one lie, one deception is still unethical.
It is always wrong to take any action that is prohibited by federal or state law.
It is always wrong to lie about or knowingly misrepresent a financial product or service.
It is always wrong to purposely omit pertinent information regarding the product or investment.
It is always wrong to consider one’s personal gain over the potential loss another might experience.
The Same by Any Other Name
Ethics may sometimes be referred to as values. It may also be referred to as morality. It really does not matter what label we give it because the term is merely a word. What matters is how we make our decisions, how we respond to others, and how we view ourselves and our lives. Regardless of whether our ethics are stated or implied, they are always present. The decisions that are made, with or without ethical considerations, have profound effects on our own lives and those of others.
Businesses do, of course, base many of their decisions on financial aspects. What will bring a profit? How can costs be cut? How can taxation be minimized?
There are always many aspects to a business and we often assume that a business is neither moral nor immoral. After all, the goal is profits. Companies do, however, have a moral or ethical responsibility to their employees, community, and even to itself. Many companies have demonstrated they can make large profits while operating ethically. Being ethical does not automatically reduce profits.
A background of ethics or values form the foundation of the decisions made. A company trying to minimize taxation may not think they are considering ethical issues, but ethics will be part of the final conclusion. If the company faithfully follows all lawful procedures while minimizing taxes that is an ethical decision. If the company makes misrepresentations to minimize tax payments, that is also an ethical decision. It just isn’t labeled as such by the company.
Because values become an integrated part of both personal lives and business conduct, individuals are often unaware that decisions are made with an ethical context. A person who has formed an ethical core in early life will continue to make the majority of his or her decisions based on that early training (even if he or she is unaware of it).
For example, a salesperson that formed their early sales presentation on the basis of honesty and ethical conduct will, over the months and years, make a habit of saying their presentation in a certain manner. Court cases have been won and lost on this concept of "repetitive actions." As time goes by, this sales presentation becomes a "habit" with little variation. Eventually, the salesperson may well forget how the original presentation was formed, but if ethics played a part in the original presentation, ethics will continue to play a part as time passes.
The same may be said of driving a car, riding a bicycle, and other daily habits that were initially "learned behavior" but become "reflex behavior."
Ethics began as society's code of unwritten rules. From the time humans began living together, such codes of unwritten rules were necessary simply to survive. Survival could not continue if the strong (typically males) took everything, including food and shelter, from those who were weaker. The weaker individuals were likely to be women and children. If women and children did not survive, the species could not have survived either. These rules established the way in which others were to be treated for the benefit of all.
For centuries, societies have argued over what is ethical or moral. It was during the fifth century B.C. in Greece that the philosopher Socrates gave ethics its formal beginning. The word ethics comes from the Greek word ethos, which means "character."
Each country will have ethics that are unique to its people and ethics that are common everywhere. In America, we have many variances in what is believed to be ethical because we have a varied population with varied backgrounds. Our laws require each individual to conform to the laws of our country, even if they differ from their country of origin.
Our Past Continues into our Future
Every individual is a product of their past. Each of us has been affected in some way by our past. Even when society changes rapidly, current attitudes are formed from past experiences. Whether how we live today is a reflection of what we enjoyed or liked in the past or a rejection of what occurred in the past, we are still affected by it. Perhaps it is impossible to understand current ethical considerations without having some understanding of the past and how it brought us to this point.
Our values, our thinking, and our actions are often directly related to the availability of education in America. Societies that wish to restrict the freedoms of others nearly always limit their access to education. Individuals who do not have education available to them are less likely to understand their rights and therefore assert their rights.
Higher levels of education naturally lend themselves to questioning. It is probably this questioning that has brought about much of the beneficial change in America. If certain groups had not questioned the use of child labor in factories, a women’s right to cast her political vote, or a minority’s right to receive their education in any school building, change would never occur.
Ethics always plays a role in major change. When morally educated people recognized children had personal rights, they questioned use of children in factories. The factory owners insisted it was good for the family’s financial standing to work their children. Ironically, the families involved did not seem to oppose the use of their children as laborers in dangerous, depressing conditions; in fact, the parents often toiled beside their children. Rather it was other groups, such as religious organizations, that recognized how the children were exploited that brought about new child labor laws.
Education often evolves into questioning of why certain things are believed or done. Child labor was used because it was cheap; they received very little pay. Therefore, the products they produced were less expensive to buy.
It was not just education that prompted many to view the cheap labor as wrong; it was the moral view that children should not be economically exploited. The factories gave little value to the quality of the children’s lives while working. Conditions were deplorable and many children were injured in industrial accidents.
In the sixties, two major movements swept America: civil rights and antiwar sentiments. Though primarily led by our youth, the movements were backed by the majority of our mainline churches and other organized groups.
Who can forget the images we saw of Martin Luther King, groups of protesters, and the numerous conflicting views brought into our lives. For many people, this meant a new look at what we must perceive as right or wrong. There were many who disagreed with the anti-war groups, thinking they must be against America if they voiced their disagreement with her global or national policies. In fact, disagreement is what is generally needed to bring about major social changes; disagreement is not America’s enemy – it is apathy. When Americans care too little or are indifferent to what is going on around them, greed and exploitation of the weak will follow.
Much of the issues that America and her citizens have wrestled with are basically related to one issue: what is the right thing to do? Current economic issues have meant new challenges but the ethical issues do not change, although perceptions of ethical issues may. We must choose the right path independent of personal gain if we are to be moral beings.
Individuals may not have the answers to the big problems, but we are often a mirror of what is going on in our neighborhoods. If, as individuals, we are surrounded by people who are primarily concerned with themselves, it is likely that we will have that same attitude. If the company we work for stresses only production without any other input, we could lose sight of the role ethics must play in our jobs. When ethical behavior is not deemed important by our management and immediate peers, it is not surprising that problems eventually materialize.
It could be said that ethics are a recipe for living. Our code of ethics gives each of us our personal rules and values, which determines the choices we make each day of our lives. These choices affect not only ourselves, but everyone around us. Some types of ethics tell us what not to do (it is wrong to steal). Others tell us what we ought to do (be kind to animals). In addition, there are those ethics or morals that actually take us beyond the basics of moral obligations. Mary Mahowald, a medical ethicist at the University of Chicago, calls this added ethical stand virtues. Virtues might be referred to as going beyond the call of duty. It may also be referred to as moral excellence. Such moral excellence would include those who have no legal or moral duty to another, but go to extremes to help them anyway. It refers to the person who gives their life during a crisis so a stranger might live or goes to other countries to help people they do not know. Virtue is going beyond what we are ethically obligated to do.
Why do some people seem to have such a deep feeling of morality while others struggle with their personal actions? There are probably no answers to that question, but it would seem probable that ethical feelings were established in childhood by caring parents and other family members or by unusual circumstances, such as experiencing how another feels during illness or hardship.
In today's lawsuit prone society, the wise viatical firm or viatical representative will make a point of following state regulations, but ethics actually goes beyond what is simply mandated by state or federal governments. Ethics define us as individuals. A man who tells constant lies is known to others as a "liar" (although studies show that 90 percent of us lie regularly). A man who steals is known to others as a "thief". A viatical representative who is unethical will also earn a reputation for such.
It has been said that legal authorities may be able to mandate behavior, but not ethics. While this may be correct, behavior can be modified by required procedures. A person who would like to steal may not do so because required procedures make theft more difficult. Therefore, his behavior is controlled, but his ethics are not. Although he does not steal, he would still like to.
The states hope mandated behavior will eventually lead the individual to an understanding of ethical behavior and learn to follow an ethical path. It is not unusual for an individual to become the person they pretend to be. A person who acts ethically, even if they do not desire to be, may eventually soak in the ethical behavior and adopt some of that potential. In fact, since morality is about the way we live, we do learn it over our entire lifetime. To think that a person who is not ethical today will never be ethical is simply wrong. In fact, it could go the other way as well. The person who is behaving ethically today may not do so tomorrow.
It seems to be a popular notion that toughness is needed in the business world. Ethics may be perceived as a quality that does not belong with toughness. This is actually far from the truth. As many religions will be quick to confirm, toughness is often a vital part of ethical behavior. Children are the first to realize this. Peer pressure often demeans behavior that is ethical. Certainly, the child that can withstand the stress of peer pressure is displaying toughness.
Toughness may be necessary to succeed in business. The viatical salesperson that cannot take repeated rejection will not likely stay with the industry; at least not as a salesperson. Toughness that is coupled with a code of high ethics may not always experience smooth sailing, but it is likely that the combination will produce an atmosphere that promotes the amount of business desired. Toughness with ethics gives a passion for productivity and efficiency, along with the spirit of competition, all of which contributes to the traditional measures of economic success.
America was founded on the beliefs of many people who questioned the actions of the countries they came from. Those looking for freedom, religion, the right to work, the right to own possessions and land, and the right to make their own decisions all came together to form America. These were tough individuals out of necessity.
It is doubtful that any person is only good or bad. We continue to learn as new ideas are presented and new experiences encountered. Unfortunately, if we have been poorly educated on ethical conduct, we might be faced not only with learning the basics of ethical behavior, but unlearning bad conduct as well. We typically refer to our ethical code as our conscience, saying such things as “he has no conscience.” What we are really saying is that the person has no ethical code or that his code of conduct is opposite from ours.
This brings up another issue. Of course, each of us believes our code of ethics is the correct one. Branding another as unethical is sometimes merely a disagreement as to what is right and wrong. Ethics are based on personal perceptions, not on scientific fact.
There is little doubt that each of us is influenced by others. Even so, for each path chosen, we alone must take responsibility (again, it comes to personal accountability). Each of us has the ability to build, change, or destroy our own character. Part of our character is, of course, our ethical guidelines.
It should be noted that no single act defines our personal character. Each of us has likely participated in an act that was wrong (and we knew it at the time). That one action does not define our total character just as one kind act does not build our entire character. Character is more a matter of adding and subtracting our actions and thoughts. A good person can do something unkind, yet still be a good person. A person who normally behaves badly can do something kind for another and yet remain basically an immoral person. We refer to these isolated deeds as being "out of character." An action that is not consistent with one's normal behavior is not likely to form or change the character of a person (although that single action can affect another in either a positive or negative fashion).
Companies Set Guidelines
No business can exist without establishing guidelines. Most businesses have guidelines for multiple aspects, such as financial forecasts, company operations, office procedures, sales procedures and employee conduct. Many company procedures also include a code of ethics, which should be a written code for maximum effect. Every business tells their employees what actions are right and wrong by printed ethics but also by what is tolerated. It may be as simple as stating that overtime will not be paid unless properly authorized, or it may be as complex as a manager who turns his head when an unethical act is openly performed.
Ethical decisions are made every day in the workplace. These decisions will affect the quality of work performed, employment opportunities, safety of workers and products, advertising, and simple day-to-day operations.
It is encouraging to note that businesses across our nation are responding to ethics and community values. Most large corporations in the United States now have a written code of ethics. This trend is growing. Additionally, speeches of chief executive officers and annual reports are containing talk of ethical needs and approaches in business. Whether this is window dressing for the public or a real move to business values may be debated, but certainly the knowledge of ethical actions exists.
Some of the open talk of ethics in business has to do with money; companies have been sued over negligent actions with increasing court awards. Companies can no longer afford financially to ignore ethical issues. Insurers now underwrite more carefully, using methods to ensure the proper person is providing medical requirements for life insurance applications. Viatical firms are now monitored through state requirements.
A business owner must be aware that without ethical employees, the only restraint is the law. Without ethics, any business transaction that was not witnessed and recorded could not be trusted. This would certainly cripple a business if employees could not be trusted. On the other hand, when employees cannot trust their employer to be fair, problems can also develop. Those who own and manage the business must demonstrate ethics, fair play, and community involvement to financially protect themselves and their company.
We seem to expect unethical behavior in some areas, such as the government, which is probably the first step in allowing it to continue. If we believe it can’t be changed, then it won’t be changed. If we accept inept or dishonest conduct in our government, we are condoning it. We have seen multiple cases of government representatives that were voted in again despite proven illegal (and certainly unethical) conduct. What message does that send? It says we will overlook their actions, so they are free to continue.
Government fraud is usually called public corruption and it is becoming an accepted part of life by too many people. Common types of government fraud include awarding contracts to workers who offer bribes or provide political favors of some sort, voter fraud issues, embezzlement, subsidy fraud, and accepting illegal kickbacks.
Of course, we are all aware of the failings of the banking and mortgage industry. The subprime lending crisis and resulting credit crunch resulted in significant losses and many lawsuits involving the mortgage lending and securitization process. There were civil lawsuits, criminal and regulatory investigations, government efforts to correct the impact of the subprime crisis and credit crunch, and litigation and regulatory actions relating to the collapse of the auction rate securities market. Taxpayers will be covering the numerous bailouts for decades. Our children and grandchildren are likely to experience a lower quality of life due to the taxes that will be required to correct the mistakes of our generation.
The inspection of Wachovia Securities caught many of us by surprise, perhaps even Wachovia Securities. Securities regulators from six states began an inspection on July 17, 2008 as part of a probe into the company’s sales of auction rate debt. The inspection was triggered by their failure to comply fully with information requests from Missouri securities regulators.
Massachusetts sued Merrill Lynch over auction rate securities. The state alleged Merrill Lynch was committing fraud by pushing the sale of auction rate securities, knowing that the auction market was unstable.
Many people lost their homes due to a collapsing housing market. Of course, some of the problems came not from fraud or shady practices but from over-eager buyers and mortgage lenders who turned a blind eye to their own accountability (there’s that word again!). As we know, a mortgage is a loan made against real property with the intent of repayment as agreed by the borrower, under an amortization schedule until it reaches maturity. This would normally have been interrupted only by significant life events such as moving, unemployment leading to bankruptcy, divorce, or serious medical events.
Mortgages were successfully handled by banks and lending institutions for many years using sound lending practices. Underwriting requirements ensured the lending institutions that their borrowers had the financial means to meet the repayment agreements. All the elements that could cause repayment failure, such as bankruptcy, or serious life changing events were known by the actuaries that underwrote the loans, so risk factors were easily analyzed.
Consumers understood the concept that they were “sold” the house, but they did not consider the mortgage itself as being “sold” to them. Rather borrowers sought out the lending institution and made a loan application. That changed. Advertisements came in full force on television, radio and print. These advertisements promised that anyone could get a home mortgage regardless of many previously un-lendable situations. Both banks and non-banks saw an opportunity and all seemed to want their chunk of the business.
Why did lending companies want to extend credit to those surely doomed to repayment failure? Because they were lending on the premise that the majority of these loans would be refinanced or the debt would be sold. Consumers often fail to realize that “debt” is a commodity that has value in the financial markets. Consequently, the following “concepts” were accepted by even normally sound lending institutions:
Down payments, signifying the ability to save and plan for the future, were no longer required. Many lending institutions would lend 100% of the home value.
Lending institutions made the assumption that few, if any, of the borrowers planned to keep the loan to maturity. In other words, they would either refinance or sell the home prior to the loan being fully paid off. If the borrowers refinanced their loan, it was likely to be with the same lending institutions. Borrowers were encouraged to utilize loans they might not otherwise have used, such as interest only loans. This allowed borrowers to buy more expensive homes than they would have ordinarily qualified for.
Borrowers were qualified based on the amount of the initial house payment – not the total loan amount. Therefore, banks and other lending institutions knew the borrower’s would be forced to refinance in many cases because they could not afford the increasing cost of their house payment. Initial “teaser rates” went up over time, causing often dramatic increases in monthly home mortgage payments.
Finally, many lending institutions did not qualify the borrowers to the extent that had always been done in the past. Some were jokingly saying that the borrower’s pulse was good enough. In effect, some loans simply took the borrower’s word that he or she could afford even the initial house payment. Many of them could not even afford that initial low rate, but the lending companies did not care. It was a matter of getting their initial commission and moving the debt along to the next company.
These loans were not based on the home’s equity because no down payment was required in many cases and loan amounts were therefore on the full value of the home. Of course, many expected the rising housing market values to continue to rise despite signs that it was getting ready to cap. In fact, people bought second and third homes on the premise that they would be sold within two years for profit based entirely on rising home values.
Many of us thought these were new ideas that just didn’t work, but that is not the case. In the 1920’s similar lending practices were used and had basically the same results in the 1930’s when the housing market dropped. Although consumers may have thought these were new practices, responsible lending institutions were well aware of what happened in the 1930’s. Because it was common knowledge in lending circles, it was difficult to sell mortgage-backed securities based on ballooning rates without an extra yield premium, so some lenders simply lied.
Of course, not all lenders were unethical. Many lenders continued to work with sound lending practices, including some who were successfully lending to those with even low credit scores. They continued to require down payments and verifiable incomes that were likely to continue into the future (meaning they had stable jobs).
One might ask how this could happen since it was already experienced in the 1930’s. Didn’t the government correct the possibility that it could happen again? Actually, yes, they did but the law was ignored. Title 12, Sec. 1831o mandates banking regulators take prompt corrective action regarding any troubled bank. The law mandates specific actions well before the bank faces failure. It further states that a troubled bank must “restrain senior executive compensation” meaning no bonuses or raises. Obviously, this law was successfully ignored not only by the banks, but the regulators as well.
Unethical practices in the housing industry were ignored. Writer Robert Peston wrote regarding Wall Street: “The underlying cause of the current global financial crisis is a system in which there’s little personal responsibility for lending decisions.” Responsibility is more than a word; it is a necessity in the financial fields.
In the case of the home loan problems, much of the driving power came from commissions for issuing home loans. Many of those issuers did not work for the banking and lending institutions, but rather were paid on the volume of mortgages they arranged. The incentive became production rather than quality. Rather like the insurance broker who wants insurance applications, not necessarily qualified applicants.
Have you ever wondered where all these bad loans end up? The paperwork and administration duties are handled by specialist companies, some of which have gone into bankruptcy protection. The debt itself ends up on Wall Street with such banks as Goldman Sachs, Morgan Stanley, Merrill Lynch and others who take the debt and process it into asset-backed securities or bonds. The banks themselves may have no connection to the actual creation of the debt; they merely handle it once it is there. They do not know if the debt is secure or not (if it will be paid as required or default). Debt is a commodity that is bought and sold without regard to those owing the debt. The banks do have historic data but due to the types of loans that were being generated such historic data may be worthless in determining risk.
The companies will assess the risk value of the bond or security based on the data on hand, so accurate verification of the risk may not be possible. For a fee, special credit rating agencies, such as Standard & Poor or Moody’s will verify what they believe to be the correct risk rating, but unless they have better data such a rating is obviously flawed. As a result, many of the bonds and securities have received inaccurate ratings so those who invest in them are receiving flawed investment advice from those who sell them. Data may eventually emerge allowing a more accurate prediction of the risk involved for investors, but by then it will be too late for many people.
Unfortunately for investors, not all involved have done their best to provide accurate risk assessment. Since many investors do not want any part of the mortgage industry, some have become creative when marketing these bonds. Sometimes they have been mixed with other bonds in collateralized debt obligations to hide the risk involved. As the mix becomes more muddled, additional investors (believing they are avoiding mortgage debt) will actually be purchasing in part the very thing they are trying to avoid. Some have branded mortgage debt “toxic waste.” As a result of these “mix and measure” bonds, many large investors are simply avoiding bonds entirely. The mixed bonds have been sold worldwide so it is actually affecting global finances to some degree.
It is not only American institutions that have performed shamefully; this has been a global financial issue in one form or another. It is not something that the general investor is going to unravel.
A survey conducted some years ago by Business Week magazine stated that 59 to 70 percent of managers feel pressured to compromise personal ethical views in order to achieve corporate goals. This perception of pressure seemed to be especially high among lower level managers. On the positive side, 90 percent of the managers said they would support a code of ethics in their business place and the teaching of ethics in business schools.
Even a normally ethical individual can be influenced by unethical pressure from others, especially upper management. In today's economic climate, individuals often feel they would be unable to survive financially if they lost their job. As a result, he or she may be willing to participate in an activity once hired that they would not have participated in prior to being hired.
It is interesting that the FBI shifted agents from terrorism activities to work on Wall Street investigations, including one into the fraud of Bernard Madoff. Apparently, we have decided that the threat to our society is higher from the financial sector than it is from the more physical terrorists.
Laboratory research has shown unethical behavior rises as the industry or climate becomes more competitive. Perhaps that is why some companies push competitive contests and look the other way when activities seem to compromise ethical behavior. These studies further indicated that when unethical behavior is rewarded (as with prizes or additional commissions) it further erodes ethical standards. On the other hand, the same studies noted that when unethical behavior was punished, unethical behavior was deterred.
Those who study the rise and fall of ethical behaviors have made some observations: it is necessary, to preserve ethical behavior, to require:
A sensitive and informed conscience;
The ability to make ethical judgments individually; and
A corporate climate that rewards ethical behavior and punishes unethical behavior.
Most ethicists believe that the more complex our society becomes, the more we need to teach ethics to the general population. In the past, ethical behavior was primarily taught to children by their parents and churches. As families became more complex and spread out, ethical teachings seemed to diminish. Some studies have suggested that the loss of grandparent interaction is partly responsible for the loss of ethical teachings.
There are probably multiple factors causing the perceived decline in ethical behavior. For example, when people interact face-to-face with others, there is less temptation to be dishonest. When we do not see or know the person we are dealing with, dishonest activity becomes easier. It is simply easier to cheat an individual we do not personally know. If that is true, then our increased use of the internet and other non-contact activities might cause further decline in our ethical code.
Example:
Scenario #1: Betsy finds a large sum of money on the bus. There is no obvious person who left it behind. The honest thing, of course, is to turn the money in so the owner can be found, but statistically Betsy is likely to keep it.
Scenario #2: Betsy finds a large sum of money on the bus on the seat an elderly woman had been occupying. Betsy had briefly chatted with her and learned she was on the way to see her new great grandchild. Having had a personal connection with the possible owner of the cash, statistically Betsy is more likely to turn the money in to authorities.
Promoting Ethical Behavior
Ethics is not entirely about oneself; it is also about others. It is not so much what one knows that makes an individual ethical, but rather what he or she understands. We all know it is wrong to steal, but understanding how stealing harms others is more likely to promote ethical activity.
Making ethical decisions addresses four basic issues:
There is no doubt that each of us, regardless of our occupation, faces ethical issues on a daily basis. Those in an occupation with a public interest are especially faced with ethical issues and probably legal consequences.
Ethics are standards to which agents and brokers must aspire to; it is accepting the ethical commitment owed to each investor. Each type of profession has an informal code of ethics, which may sometimes be more understood than written. Ethics are a means of creating standards within any given profession to upgrade it and give it honor. It is a means of measuring performance and acknowledging outstanding individuals. Ethics are often a means of providing priorities and building traditions based on integrity.
It would be hard to imagine doing business with anyone that we knew to be unethical. Can you imagine turning over control of your financial affairs to an attorney convicted of stealing from his other clients? Would you buy a car from a person who had knowingly lied to others about the cars he represented? Would you deal with an insurance agent who had repeatedly misrepresented the products he or she sold? Ethics are the only element, other than legal mandates, that add an element of trust to many industries. It is very difficult to mandate ethics. Only behavior, as we previously stated, may actually be mandated. If a person is ethical, that is something within themselves that simply adds to their trustworthiness.
No matter what our profession may be, as individuals, each of us faces ethical issues each day. Some are very simplistic in nature while others are complex and may have many sides (and many correct answers) to them. We face moral issues every day. Such questions as: How much should I give to the poor? Is it wrong for me to take drugs? Should I report someone who is cheating? are daily concerns.
Some types of ethical or moral questions can be directed to our religious institutions for support in determining the right answer. Sometimes the answers can be found in our legal system. If our state or federal government says commingling investor funds with our own is illegal, for example, then we could also state that it must be unethical as well. Sometimes, determining what is ethical is simply a matter of what feels right emotionally. We have all said or heard someone else say "it just doesn't feel right." That feeling of right and wrong is probably the result of our childhood upbringing. Even if we do not distinctly remember being taught that a particular action is either right or wrong, somewhere in our upbringing or past experiences, we have received such teachings.
While this chapter cannot instill ethics into anyone who has none, it may provide the tools for determining the more complex issues. By using basic concepts and theories and by having an appreciation of what constitutes an ethical solution, decisions may be made on the basis of reason.
It should be noted that different conclusions may be reached to the same ethical question. It does not mean that one solution is right and another wrong. Ethical questions often have multiple answers, all of which may be correct. Many ethical questions involve multiple hues; some decisions may be based solely on facts, while others may be based less on facts and more on emotional factors (or what simply feels right).
Business leaders often question whether ethics may be taught in the workplace. This, of course, depends upon multiple factors. First of all, does the employee desire to be ethical? As with all things, the person must want to achieve the goal at hand. If other goals are more important to the individual, then it will perhaps not be possible to teach ethical behavior. If however, ethical behavior is important to the individual, even if other goals are also sought, ethics may be taught. Unfortunately, those who are faced with the responsibility of hiring personnel can seldom determine the individual's ethical attitude.
A general requirement of ethics is a willingness to take into account the interests, desires and needs of others. One could argue that it is necessary to look out for one's own interests, desires and needs. While this is certainly true to a point (we must cloth, feed and house ourselves and our families), taking our own interests into account need not mean making unethical or immoral decisions regarding others. Even commissioned salespeople are able to make a very good living while still maintaining ethical behavior. In fact, the best salespeople do not need to behave unethically because they have mastered their trade through the development of communication skills and professional training.
When a child asks his or her parent: "Why do I have to share my toys?" the reply may be "Because if you don't share your toys with your sister, she will not share her toys with you." This simple logical answer teaches the child a valuable lesson. Our interests are tied to the interests of others. Just as our ancestors had to protect one another to survive, we must treat each other ethically so society and all that involves can survive. For example, if only those who wanted to pay taxes did so we would not have free schools, decent roads and bridges, emergency services, libraries, and many other luxuries that exist solely due to the taxes we pay.
Every aspect of our society is built on the premise that it must be ethically run for the good of those who cannot adequately protect themselves. Our laws protect the weak, the less educated, and the unusual from others. We know the system is not perfect; there will always be those who cheat, lie, and steal. There will always be those who kill others, those who harm their own family members, and those who cannot look beyond their own self interests. Even so, our society runs pretty well as long as we are constantly vigilant about enforcing ethical behavior. When we fail to act ethically there are unfortunate consequences, as seen in the housing and loan markets.
Just as the man who is known as a liar or a thief will find others unwilling to trust him or her, the business man or woman who is not ethical will, at some point, find making a living difficult because clients do not wish to deal with him or her. We are better able to achieve our goals when we recognize the goals and interests of others. Plato argued that immorality (unethical behavior) is ultimately self-defeating. While the con artist may not believe this and some unethical people do seem to prove the point, most people believe that, at some point in time, each person must deal with their past behavior. The Bible says we will reap what we sow. Even if we do not get back what we give others (whether that be good or bad), most people would agree that it is easier to be happy with ourselves when we feel we have done the right thing.
Egoism
Not everyone believes it is in their own self-interest to behave ethically. Some who reject the idea of other's interests and desires are called egoists. Do not confuse this with egotism. An egotist is a person who is self-absorbed. These people make poor egoists. Webster's dictionary defines egoism as the doctrine that self-interest is the basis of all behavior whereas egotism is the habit of being too self-absorbed, talking too much about oneself or conceit.
Psychological egoism maintains that people are always motivated to act in their own perceived best interest. Psychological egoism is not an ethical theory since it does not tell people outright how to behave. Rather it attempts to explain why people behave in certain ways. Even so, ethical theorists consider this theory since it does have a bearing on their theories of ethical behavior.
Another version of egoism is a genuine ethical theory. Traditionally named "ethical egoism," it maintains that people ought to act in their perceived best interest. An ethical egoist argues that people should act in their best interest at all times because it is good for the general economy (providing industry and jobs, for instance). In the case of viatical investing, an honest viatical firm is helping others while also profiting because the viator benefits from the cash he or she receives from selling their life insurance policy and the investor benefits from their yields at contract maturity. Therefore, the viatical firm, while acting in their own best interest to earn profits, also benefits the other viatical parties.
In the marketplace we all try to buy low and sell high. That is certainly an attempt to pursue our own self-interest. It is unlikely that the buyer worries about the seller when buying low, nor does the seller worry about the buyer when selling high. Individual self-interest is at work. Even though this may be an excellent example of ethical egoism, it tends to be both orderly and productive to our society. Therefore, this theory has positive dimensions to it despite what could be termed a selfish basis.
A political economist, Adam Smith, believed in ethical egoism. He felt that people, while being interested in their own needs and desires, created good for society as a whole. Smith felt that economic conditions were created and expanded when people acted in their own behalf.
If we were to fully believe in psychological egoism, which states that humans automatically act in their own behalf, many of the acts of heroism that we see could not be explained. There are countless heroic acts that are clearly not in the hero’s best interest; in fact, some of these heroes die or are severely injured as a result of their desire to help others.
There is more day-to-day heroism than one might realize. Such simple things as the child who shares his lunch with another student, the woman who gives her last dollars to a homeless person or the man who donates his only day off for a food drive are all acts of kindness that consider the needs and desires of others above their own interests.
Is it possible to teach ethical behavior to others?
Many people feel it is possible to teach another to act ethically, though certainly not in every situation. A person who has never considered ethical behavior might suddenly begin to do so if the company where he or she works begins a strong ethics campaign. On the other hand, a person might continue to act unethically regardless of any threats of retribution. One thing is certain: the effort must be made to emphasize ethical behavior because there will always be those who will respond favorably.
What is the scope of ethics?
Ethics is not a simple subject, since perception determines ethics. In many industries, including the viatical and insurance industry, the professionals have knowledge that the general population does not have. As a result, those individuals who seek out the professionals must rely upon their honesty and integrity. A feeling of ethical standards must exist. It was the potential for abuse of power that provided a set of rules for what is commonly called "ethical behavior." Sometimes, ethics are written standards, which may be mandated by law on either a state or federal level. The premise, upon which practical ethics must be based, is that power must be exercised in the interest of the viators and investors who seek the professionals out and may not be exercised solely in the best interest of the professionals themselves.
Early viatical history gave these investments a bad name. To this day, many agents and potential investors avoid the viatical industry based solely on the reputation they gained in the 1980’s and 1990’s. It will take years for viatical settlements to gain a positive image; it will only happen when an ethical track record can be seen by investors and state regulating authorities. Even insurance companies are leery of viatical settlements and viatical companies since the viatical industry seems to encourage terminally ill people to seek out policies under fraudulent circumstances.
People and cultures do not always agree on what is ethical. What one culture or society may consider ethical another may not. Even within the same culture or society, people may disagree on what is and is not ethical. America has seen many instances of ethical disagreement; currently there is disagreement on such issues as abortion and giving gay partners the same status as straight partners (specifically, the right to marry and have it legally recognized for employment benefits).
Every person probably has some degree of greed or selfishness within them. The ethical person realizes this possibility. Since ethics is a code of values to guide man's choices and actions, the ethical person will bypass their own greed and do what is perceived as best for the majority of people or best for the person they are dealing with. In choosing his or her actions and goals, constant alternatives are faced. It is not always easy to decide which choice is best and ethical. Without a standard of values, ethical choices would be very hard to make. At some level, our religious background may set the standard of values by which we make our choices. However we arrive at it, understanding how others feel determines many of our ethical decisions.
What does it take to be a moral person?
Most people know right from wrong. While what is right may not always be agreed upon, as long as the person acts according to what they perceive to be right, they are acting ethically. Most of us are not involved in the global ethical questions; our ethical issues involve family and profession. Most of us deal with the simple things in life – earning an honest living, paying taxes, supporting our families, giving to our churches, helping our elderly parents, and all the other aspects of daily life. Our quest for ethical guidelines is fairly simple. We don’t have to address the issues on Wall Street or achieve world peace.
The ethical person believes in doing what is right. He or she doesn’t have to think about it; they know the path to take. The ethical viatical representative or firm believes in full disclosure; the ethical viator would not consider applying for a life insurance policy under fraudulent conditions.
Quality of Work
One’s quality of work might include how clients are treated, performance of work-related duties, acquiring continuing education even when not state mandated, and the viatical contracts purchased or sold. It is quality, not quantity of work that counts. Forging signatures, misstating health conditions, omitting information for the sake of a sale, or any act that is not based on honesty, determines the quality of one’s work. True professionals simply feel their integrity is worth more to them than a quick sale. We all occasionally make mistakes and that is not a reflection of quality unless we do nothing to correct the errors or learn from them. If an error occurs and no effort is made to correct it, then that would reflects on the type of work performed.
What do I want my legacy to be?
Most people want to be remembered in a favorable way. I doubt we go through life worrying about it, but we also don’t want people standing around our grave saying “I sure am glad he’s gone!” No one wants their friends or family to say “I showed up at the funeral just to make sure she was really dead!”
Those who proclaim the loudest that they don’t care what anyone thinks probably care the most. Most of us want to be remembered in a favorable light. We want our children to keep our picture on display; we want our grandchildren to talk fondly of the time we spent with them; we want our friends to remember the good times.
While the legacy that matters most is the personal one we leave our family and friends, we will also leave a business legacy. Hopefully it will be one of competency. Of course, most people would not view themselves as incompetent even if they were which is why the industry is supposed to remove those that are incompetent. Sometimes, competency is merely a matter of obtaining required or necessary education within any given industry. It is always interesting to note the amount of sincere education acquired by the leaders in an industry. The leaders are nearly always more concerned with educating themselves to a greater degree than are those at the bottom. Education and ethics go together just as success and education go hand-in-hand.
Ethics Start at the Top
We need to recognize that the companies we work for also have an ethical obligation to their investors and their employees. When our employers do not display an ethical attitude not only does it affect our ability to work with the public, but it also impacts each employee and associate personally in some way. When ethical behavior is not deemed important by the company individuals may eventually be swayed to also act unethically; our view of ethical behavior may become distorted. When an individual feels their day-in, day-out role is primarily connected to making money without any regard as to how the money is made, personal satisfaction and happiness may be affected.
What are our responsibilities to other moral persons?
Most people realize that they are responsible for their personal actions. Everyone has a moral responsibility to treat others professionally, to fully disclose pertinent investment facts, and to follow all applicable laws. We further have a responsibility to know our products and the laws that govern them. If we do all of this, are we fulfilling our responsibilities to other moral people? Most would agree that we are. Therefore, ethics that are followed in our personal and professional lives generally also fulfill our moral responsibilities to other moral people.
Even though we act morally and ethically, based on our own perceived standards of right and wrong, that does not necessarily mean others will agree. This would especially be true if the outcome was not as the other individual expected. Every financial planner, for example, must have a disclaimer since he or she cannot predict what their financial recommendations will produce in yield. The planner may not even be able to accurately predict the outcome of principal since investments involve risk of principal as well as earnings. The same is true for viatical settlement investments. Representatives cannot guarantee yields will be 25 percent, for example, even though the analysis of the life insurance policy may predict it. When investors do not receive what was expected, even an ethical viatical representative may be accused of unethical behavior. Therefore, like the financial planner that has her clients sign a disclaimer that all risk was disclosed, the viatical representative must confirm that his or her clients fully understand the risk involved (a disclaimer may be necessary to confirm this understanding).
Few people want to admit that they do not understand what was just explained to them by the viatical representative. Therefore, it is possible that the investor will nod their understanding when actually they do not fully understand the risks at all. This might especially be true if the investor does not have a complete understanding of the terms used in viatical settlement contracts. Representatives must use language that is easy to recognize and understand. Using industry terminology should only be used if the investor is seasoned and knows what the terms refer to. Never should a viatical representative show off his or her expertise by using terms the general lay person would not understand or could misunderstand. There is risk involved in all investments, but viatical settlements have not been used by the general public, so they are not likely to be fully understood by the general public.
Viatical representatives can make it easier for their potential investors to admit lack of understanding by acknowledging many people are not familiar with the concept, such as: “Mr. Smith, this is new to many people. Most of my clients have not seen these investments and do not understand all the terms. Are you like most of my clients? Do some elements of this seem confusing in any way?”
This allows the prospective investors to voice any concerns or questions. Yes, it will take more of the representative’s time, but that time will be well spent since the investor will be more likely to trust the representative and will be more likely to understand their investment risks.
Objectivist Ethics
Since reason is man's basic means of survival, it is not surprising that we have the ability to form who and what we are. This is called objectivist ethics. Since everything man needs has to be discovered by his own mind and produced by his own efforts, there are two basic elements involved in becoming the person we choose to be: thinking and actions. We decide who we will be and our actions carry out those thoughts. To be an ethical person we must, through our thinking, choose to be so and then productively work towards it.
If some people do not choose to make any conscience choice, they will develop by imitating and repeating the actions of those around them. This is why it is so important that agencies and management staff make ethical behavior a priority in the workplace. Those who simply repeat the actions of those around them seldom make an effort to develop their own code of ethics, especially in the workplace. Unfortunately, who is imitated is seldom a concern to these individuals. As a result, one bad apple can, in effect, spoil the barrel.
As a theory of ethics, objectivist ethics holds man's life as the standard of value and his own life as the ethical purpose of every individual man. The difference between "standard" and "purpose", as used in this context, can be important. "Standard" is an abstract principle that serves as a measurement or gauge to guide a person's choices in his or her achievements or specific goals. The goal itself or the achievements obtained become the "purpose". Probably every person has some "purpose" or goal in life, but not everyone would have a "standard" of life.
For example:
Pete was born very poor. This poverty made such an impact on him in his childhood that he now strives to become wealthy. He obtains his accumulating wealth by whatever means necessary. Although Pete definitely has a goal or purpose in life of becoming rich, he does not have any standards. There is little doubt among those who know Pete that he will become very rich. Along the way, however, Pete is not finding much happiness. He has not thought out the goals he has established. Pete knows what he is doing, but he does not understand why he is doing it. Pete would be surprised (and perhaps even laugh) if someone told him that ethics are a part of finding happiness.
Holding our Ethic Code
Our history is full of wise men that wrote about the philosophies of life. While many of them did not agree on all points, most did agree on one: lack of ethics promotes disorganization, financial turmoil and sometimes even the demise of governments.
The activities and policies of a business tell their employees what the firm's underlying values actually are. It will not matter what is written in the employee manuals. What the firm actually does will be the loudest indicator. Actions reveal more about a business than does executive speeches or advertising campaigns. The employees will judge the company by the way they are treated individually.
As individuals, we may often feel that we have little control over others but we can control ourselves. We may not affect government policy or save another’s life, but we do affect our own happiness and the happiness of our friends and family by the way we live our lives. We can certainly affect the lives of those who invest based on our recommendation; by acting responsibly we might affect the investor’s happiness. Providing others with the opportunity for happiness is a great ability.
Is the way we treat others an extension of our code of ethics? Often, we forget that ethical behavior is not only connected to such things as paying our taxes fairly, following the laws or telling the truth. Ethical behavior can also be connected to how we treat others. Ethics is a code of values to guide man's choices and actions. In choosing one's own actions and even goals, we must face constant alternatives. Even such things as the manner in which we speak to others are a part of our daily alternatives.
Being ethical can be very difficult when being unethical appears more rewarding from a financial or public standpoint. The public standpoint is often overlooked. If we feel strongly about something that no one else seems to, it is very easy to keep quiet. In fact, that is precisely what gets "followers" into trouble. When a person knows something is not right, but no one else is saying anything, it is easy for the individual to simply go along with the group.
On the surface it would be easy to say that right is right no matter what. It is easy to say what others should do, but it is what each individual does that is most important. Studies suggest people are more likely to stress their ethics if they are not required to take a personal stand on an issue; they are less likely to be ethically firm when it affects their own life. In other words, studies indicate that people are more likely to voice ethical behavior than follow it.
Who we become is a gradual thing. Seldom are we formed by one single experience although one single experience, if great enough, can change our direction or focus in life. Change, for either good or bad, can be a gradual process. So gradual that people may fail to notice what is happening. Therefore, a code of ethics must be a daily goal that we deliberately choose to follow.
We often hear that Americans are the largest consumers of goods and services in the world. We have become a nation of buyers where we were once a nation of savers. Pleasure today is promoted over financial safety tomorrow. This attitude is natural; most people would rather have something now than later. Without a system of values, individuals may come to feel that society owes them a comfortable living in retirement. This rationalization allows them to spend today without worrying about tomorrow. Self-discipline and self-control have given way to self-fulfillment and material consumption. Businesses have also fallen prey to material consumption. Material consumption can often be translated into one general word: greed.
Some might say being ethical is hard work, but others would disagree. Having a specific ethical code could make life easier since such individuals instinctively know who they are and how they wish to respond to any given situation. It removes the stress that might otherwise exist when decisions are necessary regarding personal or business actions. The beauty of having freedom of choice is the ability to improve on past decisions; we are not permanently tied to what we have done in the past.
It is possible to discontinue acting in an unethical manner, or "mend our ways" as it is often referred to. It is never too late to become ethical. For example, John Newton, the man who wrote one of our most famous songs, was the captain of a slave ship. As he came to realize that slavery was wrong, he used his experiences to bring this same understanding to many others. The song written by John Newton was Amazing Grace. Knowing this, the words of the song gain greater meaning:
Amazing grace, how sweet the sound
that saved a wretch like me
I once was lost
but now I'm found
was blind, but now I see.
A few years ago, the Howard Fischer Associates (one of New York's top executive search firms) conducted a survey of CEOs of the top one hundred companies in the New York area. They were looking for traits most valued by industry leaders.
Of course, honesty and fairness were ranked at the very top. These are the other character traits that were listed:
Never compromise on matters of principle or standards of excellence, even on minor issues.
Be persistent and never give up.
Have a vision of where you are going and communicate it often.
Know what you stand for, set high standards, and don't be afraid to take on tough problems despite the risks.
Spend less time managing and more time leading. Lead by example.
Bring out the best in others. Hire the best people you can find, then delegate authority and responsibility, but stay in touch.
Have confidence in yourself and in those around you, and trust others.
Accept blame for failures and credit others with success. Possess integrity and personal courage.
There are many books and so-called experts telling us how to achieve financial and business success. We are not here to say whether that advice is accurate but before accepting advice from others it might be wise to determine what one actually wishes to accomplish during their lifetime. So often individuals lose track of their true goals (rearing happy children, writing a book, or establishing a close family) and become side-tracked with the goals of others, such as the company they work for. When an individual loses track of their own goals, they are more likely to become followers. For business owners, including many self-employed insurance agents, it is easy to become consumed by earning that next commission. Finding new investors may be necessary for financial reasons, but not at the cost of all else in life.
Mores
Mores are those customs, which are enforced by social pressure. Mores are relative to culture. They are established by patterns of action to which the individual is expected to conform and from which deviation may bring disapproval and perhaps even punishment. While these standards are considered to be a matter of ethics, they may vary from society to society.
The Thorndike Barnhart Comprehensive dictionary defines mores as:
mo.res, noun: traditional rules; customs; manners.
We stated previously that only behavior may be dictated, not ethics. The term mores works directly with this context. Mores are ethical standards that are enforced by social pressure. Groups of professional people create ethical standards to give their profession honor. These groups desire society's approval and they realize that there will always be those among us who will not voluntarily follow ethical procedures. As a result, mores are developed.
Many types of professions deal with knowledge that the average person simply would not have. Viatical settlements and insurance are examples of those professions. As a result, those individuals who seek out the professionals must rely upon their honesty and integrity. A feeling of ethical standards (which are enforced by social pressure) must exist. It was the potential for abuse of power and knowledge that provided sets of rules or what is often called ethical standards. Sometimes ethics are written standards; sometimes they are merely understood. What was previously understood to be required ethical conduct becomes written laws when individuals do not follow preferred practices. At that point, pressure from society turns what were previously understood procedures into written laws or mandates.
Every consumer wants complete honesty from those they deal with, including complete disclosure. Therefore, complete information is a custom, which is enforced by social pressure. Mores are established patterns of action to which an individual is expected to conform.
Mores vary from culture to culture because how people live and what is important to them vary from culture to culture. For example, viatical settlements initially had few regulations because there was no past investing experience in these transactions. Since it was not previously used in the general investment community, the need for specific rules was not known. As the need for regulation became apparent, codes of conduct were instituted by the individual states. As abuses accumulate in any industry, standards are implemented because the need for them brought about pressure from our society.
Mores relates to customs, not always laws, although those customs often develop into laws. Mores are customs that are enforced by social pressure. In this context, "right" simply means according to the mores and "wrong" means in violation of the mores.
It is important to understand that mores do not automatically make an action right or wrong; mores make no attempt to determine moral issues. They simply define what is right or wrong according to the given culture.
A good example of this has to do with the slavery that existed in the United States. It was the custom in some areas to own slaves. Those who lived with those customs generally tended to support slavery. That belief did not necessarily make it morally correct. There is the tendency in any group of people to consider their best interests to be right. That which is contrary to their best interests may often be termed wrong. Customs are often negative to one group of people and positive to another, even in America where we want to believe every person has equal rights.
As a whole, however, mores tend to be the general rule of conduct for the society in its totality. Generally speaking, it is right for the members of the culture to follow the mores because they developed from the group in its entirety. Without mores, any society would lapse into a state of anarchy that would be intolerable for its members. While this basic concept is correct, one should not lose sight of the fact, however, that not all mores are morally acceptable. There is certainly some obligation to conformity in our society for the good of all. If one is deviating from the generally accepted code of behavior, that individual might wish to consider the possibility that his or her deviation has to do with personal gain. If this is the case, that deviation cannot be rationalized away.
When Helen Keller was asked if there were anything worse than being blind, she answered, "Yes. Being able to see and having no vision."
Every person wants recognition. Oprah Winfrey may have said it best: everyone needs validation. Each of us needs to be recognized as a person of worth. Even children need to feel they are valued by someone in their life. Having an ethical code often brings about this validation, if only to those with similar values. Validation may come primarily from our place of employment if it is not provided by our family or friends. Unfortunately, our employer may not validate more than personal production.
A work atmosphere that is kind and considerate, education oriented, and cooperative can go far in securing ethical behavior practices, but let's be realistic. When an agency is investing heavily in its sales force, it is likely that production is a major criterion for remaining employed there. Certainly, there are agencies (many of them) that do promote both sales and ethics. If an individual is lucky enough to work for a good company, it is likely that new comers become more ethical (just as others will become less ethical in the opposite type of atmosphere) just by being exposed to those who work there.
While we clamor for the recognition and respect of others, perhaps what we are really trying to achieve is the recognition and respect that comes from within. Since we all need validation in some way, what we achieve must provide at least some of that recognition in our lives.
“Fast Buck” Items
Any product or service can become a “fast buck” item if it is sold improperly, including viatical settlement contracts. “Fast buck” has to do with how the product or service is sold, not what the product or service is. Any product paying a commission or finder's fee can become a fast-buck item. Fast-buck has to do with the attitude of the salesperson. Is the salesperson thinking almost entirely about making some fast money or are they considering the investor’s needs?
The Professional
There are many people willing to be thought of as a professional investment advisor. Simply desiring the title does not make one a professional, however. In many states, a person can give themselves nearly any title they desire. The title may have nothing at all to do with either experience or training. From a business standpoint, it means selecting viatical firms and other support systems that are both professional and knowledgeable.
The first step is to be sure that the viatical firm and their associates are ethical professionals. Whether you represent the viatical firm or are an investor, it is important to deal with legitimate companies. That does not necessarily mean that they must share the same views on the environment, government or community. It does mean that they must be financially and professionally honest in every capacity. Certainly, this means following all laws, but also honest in the way they deal with consumers and business associates.
Due Diligence
The term, due diligence, is primarily derived from the securities industry. Due diligence is typically an analysis of a particular company's products, performance and financial standing. As it relates to viatical firms, it should prove that the settlement contracts they present can actually be achieved. The life insurance contracts should be past the incontestability period, or clearly disclosed if they are within that period. It is vital to investors that the viatical company uses procedures that produce realistic maturity dates. In short, due diligence is the analysis of whether the viatical company can keep their promises or not.
In the past, it has not been easy to pursue due diligence on viatical firms but with state requirements it is getting easier. The first step, therefore, is the state viatical licensing department, which is usually the state insurance department. This may not provide as much information as the inquirer may wish, but it is a good start.
A common sense approach to due diligence may be used as long as the information is confirmed. The goal is not necessarily to find those companies that are sound, but rather to avoid companies that are not. Such things as historical data and other industry related information may give indications of legitimate companies. Perhaps one of the best indicators is how they represent the life insurance policies they are offering to investors. Specifically ask how they determine payment for the life policies, how they analyze maturity risk (dates of death), and how much underwriting is performed.
Consumers often ask other professionals for recommendations. Professionals in other fields may refer their clients to viatical firms, but the investor is still wise to do their own analysis of the viatical firm. Referring professionals might include accountants, health care professionals, insurance agents, and attorneys.
Each of us must manage our day-to-day lives in the best way we can. This includes the management of our finances. In these uncertain financial times, the only sure thing may be death and taxes. If death is a sure bet, it is likely to attract investors through viatical settlement contracts. It may be difficult to locate the people and institutions we feel secure with but it is worth the time spent finding them.
Perhaps the greatest challenge is not philosophical knowledge, but rather moral understanding. The challenge is not necessarily to meet your financial goal, but rather to find happiness on a daily basis. The financial goal will come on its own.
This completes your reading material.
United Insurance Educators, Inc.
PO Box 1030
Eatonville, WA 98328
www.UIEce.com
Email: mail@uiece.com
(253) 846-1155 • (800) 735-1155
End of Chapter 7
United Insurance Educators, Inc.