If you’re an RIA or IAR, you are required by the SEC (federal and most states) to have a code of ethics. If you are using the sample language provided by the SEC, then you don’t have a code of ethics — you have a code of conduct.
A code of ethics is principles-based; a code of conduct is rules-based. Want to know an easy way to remember the difference? Congress has a code of conduct, not a code of ethics. A code of conduct, which is rules-based, is easier to work around than a code of ethics.
So, what are the seven signs that you don’t have a code of ethics?
1. Attentive: You know you don’t have a code of ethics when you find yourself asking: What code of ethics?
2. Exodus: You know you don’t have a code of ethics if your code reads like the Ten Commandments, i.e., “Thou shall not…” (an indication of a rules-based code).
3. Copy and Paste: You know you don’t have a code of ethics if your code still has the name of another organization pasted throughout.
4. Articulate: You know you don’t have a code of ethics when your code reads like the assembly instructions for a tricycle, instead of a copy of Zen and the Art of Motorcycle Maintenance.
5. Accountable: You know you don’t have a code of ethics when no one is held accountable when there is a breach.
6. Aligned: You know you don’t have a code of ethics if it is filled with negative motivation (manipulation and control) as opposed to points of inspiration.
7. Authentic: You know you don’t have a code of ethics if your firm’s officers and directors believe that it doesn’t apply to them.
Don Trone, Mary Lou Wattman and Rear Admiral Steve Branham, USCG (retired) are the co-founders of 3ethos. Their research and training programs are focused on the intersection between leadership, stewardship and governance. Don and Mary are the co-authors of the recently released book, "LeaderMetrics®: What Key Decision-makers Need to Know When Serving in a Critical Leadership Role."