The ethical dilemma that Mr. Markham is currently facing is the necessity to choose between the two undesirable options. These are: whether to report the board of directors of the pension funds the real numbers regarding their value of liabilities, which are two times higher than the ‘official numbers,’ or to just silently move on with his job, violating the CFA Code of Ethics and Standards of Professional Conduct. Mr. Markham also has other alternatives, but he prefers not to say them aloud. This paper aims to analyze the ethical dilemma Mr. Markham faces and propose optimal alternatives developed in the context of the relevant laws, codes, standards, and regulations.
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Mr. Markham is the CFA of the Investment Consulting Associates (ICA) firm. ICA is giving investment advice to pension funds, and Mr. Markham’s job is to develop comprehensive investment advice. The firm is usually hired by the pension funds who want to hear only good news about their assets. The main reason for such desire is that pension funds want to present seemingly favorable conditions for their investors, who are current and future pensioners. The second reason is that if the actual information about the value of pension funds’ liabilities became known to the broad public, politicians would stop supporting the pension funds, and they would have to close up. Moreover, if Mr. Markham reports the real statistics to the boards of directors of the pension funds, who are the primary clients of ICA, they will likely fire the firm, and his CEO will fire Mr. Markham himself. Mr. Markham spoke about the actual statistics with his colleagues and management, but they would not want to listen, insisting that Mr. Markham should “do his job.”
Interestingly, although he is not an accountant and is not responsible for calculating the actuaries for the pension funds, part of Mr. Markham’s job is providing sound investment advice, which can only be developed considering the real circumstances of the company seeking investment. Moreover, the CFA Code of Ethics and Standards of Professional Conduct clearly states that as a professional CFA, Mr. Markham should not make any wrongdoing, given that he is aware of it. Therefore, Mr. Markham found himself in a complex situation, in which, to obey the Code of Ethics he should refuse from the obvious wrongdoing, and to save his job, he must be involved in presenting investment advice that is based on misleading information.
Noteworthy, some firms hire HR professionals who specialize in ethical dilemmas. Usually, they ask employees who face ethical dilemmas several important questions. These are: Is the action legal? Is it the right thing to do? Who will be impacted? Does the decision fit with the organization’s mission? How will I feel after I make this decision? How will my decision look to readers of the local newspaper? In the light of the ethical dilemma details presented above, Mr. Markham has several alternatives to the two unfavorable options of making the wrongdoing and losing his job.
Interestingly, investment advisors report annually to the CFA Code of Ethics and Standards of Professional Conduct on compliance with ethical standards and have a recorded disciplinary history. This history is stored on such portals as the Investment Advisor Public Disclosure website, FINRA’s Broker Check website, and the North American Securities Administrators Association’s Check out Your Broker website (Fontinelle, 2019). Considering that providing investment advice based on misleading information is a violation of the Investment Advisers Act of 1940, Mr. Markham violates not only ethical standards.
By participating in the illegal activities of the ICA, he breaks the law and risks his future career (Kagan, 2019). Therefore, in the presented situation, Mr. Markham has only two alternatives – a silent resignation or a resignation accompanied by a report about the company’s wrongdoings. Otherwise, he risks facing the legal consequences of providing false financial information and permanently losing his reputation and the ability to provide investment advisory services in the future.
Quietly leaving looks like the safest option, but, as for whistleblowing, Mr. Markham has to be sure that he will be protected by law. Mr. Markham also must keep in mind that since his firm’s main occupation is providing investment advice, if he reports the wrongdoing to the SEC Commission, the ICA employees will likely face legal consequences (“General Information on the Regulation of Investment Advisers,” 2011). Therefore, it is up to Mr. Markham whether to report or not on the wrongdoings.
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Since the case study is based on actual events, ICA was not the only company providing misleading investment advice for pension funds. Noteworthy, Kenton & Cheng (2020) say that there are still problems the pension funds face as pay liabilities have risen sharply in some states, resulting in higher pension guarantees. Kenton & Cheng (2020) note that according to a 2019 study by The Pew Charitable Trusts, “overall, US states have funded 69% of their liabilities” for retirement benefits; New Jersey, Kentucky, and Illinois financed only 40% of the commitments.
Interestingly, since June 2020, the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code began regulating the activity of investment advisers (“Improving Investment Advice for Workers & Retirees,” n.d.). Therefore, if I were Mr. Markham, I would not risk my carrier by providing misleading information. It is unlikely that I would officially report on the ICA wrongdoings. Still, I would maybe seek ways to anonymously inform the public and my close friends of the potential dangers of pension funds cheating their investors.
Thus, the ethical dilemma of Mr. Markham was analyzed, and optimal alternatives were proposed. Given that Mr. Markham is an investment adviser, his activity and job duties are subject to the Investment Advisers Act of 1940. Moreover, since June 2020, his actions are regulated by the ERISA and the Internal Revenue Code. Therefore, the only reasonable alternative for Mr. Markham is to resign, because in another case, he will be forced to break the law, which will ruin his career.
Fontinelle, E. (2019). Ethical standards you should expect from financial advisors. Web.
Improving investment advice for workers and retirees. (n.d.). Web.
Kagan, J. (2019). Investment Advisers Act of 1940. Web.
Kenton, W., & Cheng, M. (2020). Actuarial valuation. Web.