Philippa Hann is a former financial services litigator, now CEO of Paradigm Norton Financial Planning and co-author of The Fault Lines of Finance. During a 20-year legal career, Philippa worked at the sharp end of financial misconduct—suing banks, financial advisers and other institutions on behalf of individuals who had lost money. Her work included major group actions arising from financial mis-selling.
She also gave evidence to the UK Parliament’s Public Accounts Committee about the failures surrounding the regulation of financial advice. Today, Philippa leads Paradigm Norton, an employee-owned, B Corp financial planning firm, bringing a litigator’s perspective on risk, behaviour and accountability into the world of financial advice.
Her new book, The Fault Lines of Finance, co-written with neuropsychologist Dr Moira Somers, explores a deceptively simple question: why do good people do bad things with other people’s money?
Dr. Moira Somers is a psychologist, family wealth consultant and executive coach. She specializes in the psychology of money. She addresses matters that range from the highly personal concerns of individuals and families all the way up to broader service, design and structural issues affecting financial follow-through and equitable access to capital. Although Canada is her home, her client base is international.
Dr. Somers is a faculty member at the Ultra High Net Worth Institute and at the Sudden Money Institute. She leads the Financial Psychology Special Interest Group for the American Psychological Association. She is a featured guest and writer for many financial advising / family office podcasts and publications.
Her book, Advice that Sticks: How to Give Financial Advice that People Will Follow, has become an international bestseller. It tackles, head-on, the problem of unimplemented financial advice. It has been adopted as an authoritative guidebook by such diverse groups as postsecondary institutions, private firms specializing in Ultra Hight Net Worth clients, and credit counselling agencies.
In this episode, we’re joined by Philippa Hann and Dr. Moira Somers, co-authors of The Fault Lines of Finance: Understanding and Preventing Financial Misconduct, for a deep dive into why good people can do bad things with other people’s money. Philippa brings two decades of experience suing financial advisors, wealth managers, and banks, while Moira brings her expertise as a clinical neuropsychologist working with financial professionals, families, and the human side of money.
We explore the psychology and systems that can allow financial misconduct to happen, from financial stress, incentives, and information asymmetry to workplace culture, poor training, exhaustion, and the pressure to please. Philippa and Moira explain why ethical behavior is not simply about knowing right from wrong, and why developing “ethical health” requires understanding your own vulnerabilities, building a moral operating system, and having people you can turn to when doing the right thing becomes difficult.
We also discuss how investors can evaluate financial professionals, why complexity and exciting financial products deserve extra scrutiny, the role of regulators and insurers, and why financial sophistication doesn’t necessarily protect people from being exploited. Along the way, Philippa and Moira share case studies illustrating ethical drift, confirmation bias, and the ways seemingly small decisions can compound into serious misconduct. The conversation ultimately makes the case for moral humility, strong relationships, healthy organizational cultures, and the willingness to tolerate discomfort when something doesn’t feel right.
Key Points From This Episode:
(0:02:02) What financial misconduct means and why “other people’s money” matters.
(0:02:35) Philippa’s 20 years in litigation and the core question: why do good people do bad things?
(0:05:02) Moving beyond harm prevention toward promoting positive change in financial services.
(0:07:36) Why financial services are especially vulnerable: access, incentives, and opportunity.
(0:09:40) Information inequality and extraordinary client trust in advisors.
(0:11:15) Even sophisticated investors can fail to ask critical questions.
(0:11:57) Misconduct isn’t simply “good vs. bad people.”
(0:12:45) How systems, incentives, and culture can draw well-intentioned people into misconduct.
(0:17:40) Ethical drift: how innocent mistakes can escalate into lying and misconduct.
(0:19:05) Building a personal “moral operating system” to prepare for dilemmas.
(0:20:00) Identifying vulnerabilities: people-pleasing, exhaustion, dependence, conflict avoidance.
(0:21:00) Journaling, defining non-negotiables, and developing ethical self-awareness.
(0:25:22) Importance of trusted people who can challenge your thinking.
(0:27:13) Personal strengths (confidence, ambition) can become vulnerabilities.
(0:28:38) Systems and culture can enable misconduct or make ethics easier
(0:30:10) Organizations must make it safe to surface mistakes.
(0:34:43) Developing “ethical health” alongside physical and mental health.
(0:40:15) Ethics requires more than knowing the right answer—it requires character and motivation.
(0:44:29) Why traditional ethics training often fails in real-world dilemmas.
(1:14:11) The moral operating system as an actionable framework for behavioral ethics.
Read The Transcript:
Ben Felix: Welcome to episode 425 of the Rational Reminder Podcast. Today, we're joined by Philippa Hann and Dr. Moira Somers, who are co-authors of a new book, The Fault Lines of Finance: Understanding and Preventing Financial Misconduct.
Cameron Passmore: Philippa Hann is a lawyer who spent two decades suing financial advisors, including over a thousand claims on behalf of British steelworkers who lost their pensions. And Dr. Moira Somers, longtime friend of ours, is a clinical neuropsychologist who coaches financial professionals on the human side of money. And I'm sure many listeners will remember her from episodes 45 and 92 when she joined us with Dave Goetsch.
Ben Felix: Yeah, longtime friend of the firm, and now a three-time guest. Not too many of those out there. We talk in the episode about what leads people to do bad things with other people's money, even if they're good people.
Even if they didn't mean to be bad, what leads them to do that? We talk about why even someone who thinks that they're generally ethical and moral doesn't mean that they're safe from falling down that bad path. We also talked about how investors can try to identify where those risks lie when they're working with professionals.
Cameron Passmore: Stick around until the end and you'll hear our thoughts on the conversation. For now, let's get to the episode.
Ben Felix: Dr. Moira Somers, welcome back to the Rational Reminder Podcast. And Philippa Hann, welcome to the Rational Reminder Podcast.
Philippa Hann: Thank you.
Moira Somers: So good to be here.
Ben Felix: We're super excited to be talking to you guys about your new book, The Fault Lines of Finance: Understanding and Preventing Financial Misconduct, which Cameron and I both thought was fantastic from our perspective as practitioners. We're very excited to be talking to you about the book.
Moira Somers: Thank you.
Ben Felix: To kick it off and give listeners some context and background, what is financial misconduct?
Philippa Hann: I would describe financial misconduct, in my opinion, it is doing bad things with other people's money. So we have this concept in the book of other people's money because it's really important when you are working in finance that you remember it's not your money. So it's doing bad things with other people's money, whether that's trying to take it for yourself or guiding or advising somebody to direct their money in a way which is just not in their best interests.
Cameron Passmore: And what motivated each of you to write a book about financial misconduct?
Philippa Hann: I spent 20 years suing financial advisors, wealth managers, and banks. In doing that, I kept asking myself, you know, when you're looking on the inside of somebody else's inbox, which is what you do during the disclosure process, and you're reading all the threads, you're seeing the decisions in real time, if you like, the memos, the transcripts of conversations, the emails that are going on. You've got your client giving you their witness statement.
When you get to court, you've got the other side giving evidence as well. You've seen their witness statement. It was easy in my early years when I was, you know, in my late 20s, and I'm running these big litigation cases to almost categorize people in a kind of Disney way of, you know, these people are good and these people are bad.
So I always happen to be acting for the good guys against the bad guys. It's not that simple. And so as I went through my career, I just kept seeing the same things.
I kept having conversations with people on the other side of a courtroom or the other side of a mediation room. And I mean, I met some psychopaths, but largely, they were not psychopaths. And I just had this niggling question of why did it happen?
There was an easier option. There was something that was clear that they should have done. And they didn't take it.
I wanted to understand why. But when you're a lawyer, no one's paying you to ask questions like that. So I had to wait until I stopped being a lawyer.
When I stopped being a lawyer, I just had this desire to answer that question. Why do good people do bad things with other people's money? And I had also been at the top of my firm.
I was an equity partner. I was on the board. I was on the executive committee. I was running a large division of, 120 lawyers. I had several tens of millions of pounds that I was responsible for. And I felt the pressures.
I felt the value of being someone that brings in an amazing new client, the adoration of someone that puts in a big bill. I also felt the shame and the fear and the upset of being not the top of the pile. And so really, the desire to write the book was trying to understand why it happens and trying to save myself from being one of those people.
I saw Moira at a conference. And I don't know if anybody else saw the light bulb go off above my head when I saw her speak. And I said to myself, that's the lady I need to come and help me write this.
Cameron Passmore: Wow. Moira?
Moira Somers: For both of us, there was both a prevention and a promotion aspect or aspirations for the book. Certainly, I wanted to do something that could prevent the harms that I was seeing instead of just being called in to patch things up. Because I'm often called in sometimes by regulators, sometimes by insurers, sometimes just by families to deal with the fallout of the fraud or the financial abuse or whatever it's been.
So what could we do that could prevent some of this from happening? But I think both of us also wanted to help promote positive changes within the sector as a whole, moving beyond the low hanging fruit of do no harm into a more inspiring notion of helping people do amazing things in their careers in financial services. I happen to have the inside scoop on your firm.
I know that you folks are among the people who care so profoundly about your clients, and who want to help create great outcomes in their lives. When you see people who have that kind of motivation, you just want to see it contaminate the whole sector, the whole industry in a positive way.
Ben Felix: Yeah, it's interesting. You both bring such unique perspectives to the topic. I had not really considered, Moira, that you would be working with families in those situations who had been defrauded or who had been the victim of financial misconduct.
Because we've always worked with you in the capacity of people who have lots of wealth and are trying to figure out how to use it to improve their life as much as possible. But of course, it makes sense that you would have to deal with situations on the opposite end of that spectrum.
Moira Somers: Sometimes it's not the opposite end. People who have lots of money are amazing prey for people who want to get them. How many times have we talked about the psychology of money over the years, that it brings up so much emotion?
Another actual definition, I guess, of financial misconduct is using your own personal power to control people financially. Even if it's with their consent, using money as an instrument of control, it might not be professional misconduct, but it is personal misconduct within the family sphere, for example, or the friendship sphere. That too becomes something that it's necessary to unpack when we think about what leads people to do unethical things.
Ben Felix: I do want to talk about that because the way you guys approached it, I think, is just fascinating. Before we go there, can you talk about why financial services specifically seems to be susceptible to financial misconduct?
Philippa Hann: Let's talk about the situation that largely leads to professional misconduct. We went back and had a look at all the reports from the Association of Certified Fraud Examiners. The number one red flag for the last, I think, 14 years, which is the entire collection of the global report of all the fraud investigators who have looked at people doing bad things with money.
That is financial problems. Financial problems are the biggest issue. Let's put that in one box.
If you are not in control of your finances, if you're living beyond your means, if you are in debt, then you are one of the most highly likely people to be involved in some sort of financial misconduct. Add into that the fact that the financial services industry gives you access to influencing people with their money. It provides the opportunities that being a doctor doesn't, for example, or even being a lawyer doesn't.
You don't really touch other people's money. You add those two things in together. Then the third one is you are working with money.
You are in a world where people don't go to financial plans when they don't have money. They go when they have money. It's a potential way to earn a lot of money and potentially attracts people that think that earning a lot of money is important.
Then being thrown into a world where lots of people have lots of wealth and then that feels very normal. It feels like something you should have and it feels like something you want. You also throw into that the fact that we're not as rational as we think we are.
It's a whole big recipe of things that means that the financial services industry, unfortunately, is an area where that financial misconduct is more likely to happen because you have all of those elements of it.
Ben Felix: It sounds like trust and opportunity really kind of boils down to people tend to trust people who are in a financial services type role. Then there's an opportunity because you're close to the money.
Philippa Hann: Also, there's that information inequality as well. It's a bit like that white coat. I don't go into a garage and argue with the mechanic.
I say, well, if you say I need a widget, I believe you because I don't know enough about it. I believe that you are there to help me. It's a very similar thing.
Moira Somers: The more emotion that people have around a topic and heaven knows that money evokes emotion, the more likely it is that you will get extreme responses of either huge difficulty trusting, in which case you probably will never see those people or it will take a very, very long courtship to get involved with them. Or they come in and they just sort of say, here, kind of like you do to a doctor.
I've got all this. I don't know what to do with it. Can you just tell me what to do with it? There's lots of evidence that the critical aspects of their brain actually go offline. They look very much, when you put them in neuroimaging, like the brains of people in prayer. The brains of people under conditions of getting financial advice look a lot like the brains of people at prayer. They feel safe. They feel trusted. They feel open, right?
Like I've my hands out. I'm just ready to receive what it is you have to tell me. That non-critical aspect, especially for people who aren't particularly financially sophisticated, can ripen the vulnerability.
Ben Felix: I think I remember that from your last book, Moira. Fascinating that people's brains just shut off when they're in that conversation with an expert.
Philippa Hann: I definitely experienced that with my clients. Honestly, if I had a pound for every time one of my clients said to me, I didn't ask the question. I should have understood more, and I didn't ask the question.
I used to activate even hedge fund managers who didn't ask the question. They were financially savvy. You would expect them to be.
But as Moira said, they sat back and allowed somebody to tell them the answer rather than to have any form of curiosity about how the product worked.
Cameron Passmore: Philippa, I'd like to go back to your comment about this isn't necessarily about the Disney-style good versus bad personas. What does the evidence actually tell us about who commits financial misconduct?
Philippa Hann: Yeah, I would love to be able to say it's people with dark hair who wear glasses. It could be any of us is the real answer, but I think it is we walk around saying, I would never do that or people who do that are just bad. They're just bad and therefore I don't have to think about it anymore or they're just greedy.
None of that is true. So I think the truth is it could be any of us. And as I said before, as an equity partner in a law firm, I felt that pressure.
I felt the need to impress. I felt the desire to hit my targets. I think it is people who don't look after their ethical health who are at risk, if I'm really honest. And it's as broad as that. Moira, what do you think?
Moira Somers: I think that we also need to go beyond the level of the individual, Cameron, and think about what system are they involved in? One of the early experiences that I had in watching somebody get embroiled in financial misconduct was a young woman. It's a company that's still in existence.
I cannot believe it, but it's kind of like a pyramid scheme for financial advising. As a team leader, you go and recruit people who want to help people with their finances. So she got brought into this, into this bad system.
She was financially unsophisticated herself and so it was a world that was opening up to her about, I could help people. I could help people in my rural community by selling them these products that are going to just safeguard them. And of course, we all know the products that this company sells are not in the client's best interest.
I had at the time, a young man who'd been in a horrible accident at the age of 19, received a multi-million dollar settlement, got approached by one of these people and got all of his money involved in these funds. And it took a lawsuit to get him out of it. So at the same time that she was excited about a career path, I was helping a patient get out of that firm and there was not a titch of malice in her.
She was all enthusiasm. She had no idea that the company she was keeping was bad, that the system she was in was full of bad incentives and people who did not teach her to ask the right questions and didn't provide a proper education to her. And so it's not what we talk about time and time again in the book, is that ethics isn't just a solo sport, it is a team sport.
And heaven help you if you get involved in an organization, even in a bank in Canada or the U.S., that decides to ask you to start doing things that are not in the client's best interest because you may not know any different.
Ben Felix: And they don't tell you that. They don't tell you this isn't in the client's best interest. They tell you that it is or that it's good for the client.
Like you said, they'll convince you that you're helping people. My first job in financial services, that was part of the training and the coaching is that we are helping people. And to an extent, it's probably true, but you're also incentivized to sell really high fee products that if you knew better, you would understand are probably not in the client's best interest.
Moira Somers: It reminds me of how I met my husband. It was in a karate class. And the very first class, they put me into boxing gloves and they point at this guy and they say, go hit him.
And I said, OK. And I tried to go hit him. They told me to do that.
When you go into a new company or a bank and they say, sell somebody this credit card or sign them up for this credit card, you go, OK, because that's what you were just told to do. That was your job. And you don't even know how to approach the issue, really.
If you're just hired cold off the street and all of the training is done in-house and you don't have any particular qualifications, you're not regulated. This is part of why the financial field is ripe for misconduct as well. There's such a patchwork of regulations and lack of regulations.
Ben Felix: We talked about, I guess, a lack of training or education. We talked about incentives, but you guys go so much deeper in the book. Can you talk about some of the other reasons that good people, like you mentioned in that story you just told Moira, this is a good person doing bad things.
What are some of the other things that can lead good people to do bad things with other people's money?
Moira Somers: People can stumble into it through simply following orders. We have a whole chapter divided to misguided helpfulness, so trying to be helpful and not understanding that you are crossing boundaries that you must not cross because it just feels like you're doing good or because it feels withholding to not do the thing that you're being asked to do. Both sides of that aspect of helpfulness.
Another topic that we take on is not knowing what to do when you've made a mistake. Has anybody in this call not made an ethical mistake at some point? Probably not.
I mean, we've probably all stumbled at some point, but what do you do when that happens? Mostly we're just told, don't do it. And we're not told what to do when you do do it.
And so the impulse is to hide and to just make that bad feeling stop. And that desire to make it stop leads people to do things that just get them in deeper and deeper and deeper.
Philippa Hann: We have the story of John in the book who was exactly that, wasn't he? And it was such an innocent mistake. He was new in the job and he received an email from a client saying, call me, it's urgent.
It was one of those clients, we've all had one of those clients, they're demanding and they are aggressive and they just want the right answer right now. And in his heart of hearts, he was just a bit afraid so he did some other stuff that he could do. He knew we could do a good job in it and went home at the end of the day, hadn't called him next day, same thing, did the stuff he knew he could do, happy, feeling comfortable doing that stuff.
And then eventually when the client contacted his boss and said, why haven't I received a call? And his boss speaks to him in the moment, he lies. I didn't get an email and then goes back and doubles down on it.
And I told that story at a conference about six months ago. And a few weeks later, I was at another conference and one of the advisors who'd been there said to me, you wouldn't believe this, Philippa, but exactly the same thing happened in my firm. This was a really great firm with a really good culture.
He said exactly that. So I sat him down and said to him, you need to watch Philippa's talk because this stuff happens and it's that kind of in the moment thing where you are panicking and your brain literally isn't working properly.
Cameron Passmore: How do you think financial professionals should calibrate their moral compasses?
Philippa Hann: My view is that a lot of these problems, as Moira has just said, come from that decision-making in the moment. So when you're going into work, you're not necessarily looking out for that ethical dilemma. You're not on high alert.
Actually, you're just trying to get through the day, get through your emails, prepare your annual planning meetings, do all the stuff that you're doing, meet the client, do your job. You're not looking out for this stuff. It can catch you off guard.
So in the book, we create a design your own moral operating system effectively, which we worked super hard on to make sure that people could actually take it away and work through step by step who they are, what their vulnerabilities are. That's the kind of thing that we're looking at because you might be someone who is a huge people pleaser. You know, lots of people are.
And in the moment, you find yourself vulnerable because you don't want to say no to someone or you don't want to say that looks a bit dodgy. I mean, how often do you want to have those conversations? Not often.
And if you know that you are someone who is a people pleaser or maybe you are just exhausted, you're just exhausted and you just want it to stop. You just want to get through your emails. You just want the person to stop being cross with you, whatever it is.
Or maybe you are reliant on the firm to pay your mortgage or your rent. And actually, you being able to house your family is dependent on you saying yes to whatever it is you're being asked to do. So one of the things that we suggest in the book is that you understand what your own personal vulnerabilities are and that actually you plan around that stuff.
So if you are dependent on the next paycheck to pay your rent or your mortgage, you better get working to make sure that you have some money in the background that means that you can say no. Or, you know, if you are a people pleaser, I am a massive people pleaser. I hate saying no to people.
So I have to have in my back pocket just some wording that says, oh, hang on a minute. I just need to go away and think about that. Can I come back to you tomorrow?
For example, it's having things in your toolkit that means that you are ready for it when it happens. Another important part of that is journaling. When have I felt uncomfortable?
When have I been put in a position where I've walked away from a conversation and thought I didn't say what I was thinking or I've agreed to something that feels uncomfortable? That kind of thing. Journaling is an incredibly powerful thing.
So we run through a 12-step actually moral operating system for people to do on their own or we recommend actually with others. You can sit down and test and ask questions and work through it together. And we've both done it.
And it's a really interesting thing to do when you have to name your own non-negotiables. So my non-negotiables, for example, are I don't lie. I don't pretend I know something when I don't.
And I apologize when I need to. That last one's really hard. But I find myself bumping up against them more than you would imagine.
But because I know what they are, at that point, I can stop myself and think, why am I tempted to tell a lie at that point? What's going on for me? And I am still training.
This is a journey of a lifetime. Those things are really important in us looking after our ethical health.
Ben Felix: Moira, do you have any thoughts on that one?
Moira Somers: Knowing your own vulnerabilities is a particularly challenging one. But I tell you what, the psychopaths out there, they will find your vulnerabilities so fast. They're so good at it.
If you look at con artists, do you know what the con in con artists stands for? Confidence. They know how to get you to be confident in them.
That's why people end up doing outrageously trustful things with people is because they know how to make you feel confident in them. Mapping out where is it in the past that you might have been tricked by somebody? Or where is it that you would just really like yourself to go offline and just be taken care of?
What are the points of seduction? Maybe you have a lot of ambition. Maybe you like the shiny things.
There's no judgment in this. It's just self-knowledge. And the more self-knowledge you have, the better equipped you are to protect yourself from people who don't have your best interests at heart, or indeed to protect yourself from your own impulses.
Eugene Soltes is an author that I quite enjoy following. He wrote a book called Why They Do It, and it's essentially an expose on white collar crimes. What he found was that these aren't people who sit down with a pros and a cons list, and they painstakingly work out is this really worth it for me to engage in this? Most of these people, it was an impulse. It was a momentary decision to just do the thing, to hide, to lie on the income statement that they had to give to the chair of the board.
It wasn't well thought out. It was poor impulse control because they were tired. They were pressured.
Everybody wanted a piece of them, and they maybe didn't know what to do. And so that mapping out of what would I do in these circumstances, how do I prevent myself from getting in these circumstances, and who are my people? Who are the people that I can pick up the phone and call when I am struggling with an issue, and I don't know what the right thing to do is, or even worse, when I do know what the right thing to do is, but I don't want to do it because it's going to be hard.
Identifying who are your people that will solidly stand behind you as you do the right thing.
Ben Felix: You tell the story of Tom Hardin in the book, who we had on this podcast in episode 398. You talk about this in the book too, about how he did call people, but he kind of used it as...
Moira Somers: He used it for confirmation bias is what he used it for.
Ben Felix: Yeah.
Moira Somers: In psychology, one of our ethical guidelines is if you're concerned about somebody else's conduct, the conduct of a colleague, you have to reach out to that colleague directly. Oh, that's hard. That's really hard.
The notion is that you've got to strengthen yourself to have hard conversations. I uncovered misconduct in one of the family offices that I'm working with. This just happened a couple of months ago.
It was obvious that somebody that everybody loved was going to have to be let go. I had to call up Philippa and say, oh my God, I hate this. I hate this.
This wasn't a psychopathic person. This wasn't a narcissistic person. This was somebody who was trying to do the right thing and went horribly wrong.
I had to call up Jim Grubman and Philippa and say, help me see what I'm not seeing, or help me conceptualize this in a way so that when the rubber hits the road, I can do the right thing. They were very helpful.
Philippa Hann: And what a privilege to be that person for someone else. It is so much easier to see it for someone else than it is to see it for yourself. We ended up a bit aghast because this is the stuff we've been writing about, and it was happening to Moira. That was wild, actually, to see the book in action.
Ben Felix: That is very cool. We had Jim Grubman on in episode 282, I think. You mentioned ambition, Moira.
That's one of the things we talked to Tom Hardin about, is that his own desire to be successful was one of his big weak points that led him to do what he did.
Moira Somers: Any one of the strengths that we have can be turned into a weakness. Are you confident? Watch out. Are you ambitious? Are you not confident? Are you very humble?
Just knowing yourself and knowing what to do, knowing how that could show up. If you think of how would a spy approach you, what would Mata Hari do to seduce you? What would an objective outsider say that your vulnerabilities are? How do you deal with those?
Philippa Hann: And being isolated is one of those vulnerabilities, having that sounding board outside of yourself. And one of the real difficult places to be is either a new person in a firm, which leaves you very isolated and wanting to please, or managers, particularly new managers when they're suddenly moving. I mean, I remember moving into that management position and feeling like I had to have all the answers, feeling like I had to make all the decisions, feeling like I couldn't make a mistake, et cetera, et cetera.
And those are particularly when you're feeling that way, an incredibly vulnerable position. Is that resonating with you, Cameron?
Cameron Passmore: Yeah, it sure is. It's so interesting. It's very much the system, right? And the roles inside the system can cause this issue to be exacerbated.
Philippa Hann: How you run your firm, how you create an environment for integrity, for relationships, is so important when you're running a financial firm.
Moira Somers: One of the cases that we highlight, we sort of divide the book into three sections. So there's sort of what's been wrong with traditional ethics training and what needs to happen to make it better. What do the regulators want us to know?
What does the evidence, the research evidence, say? That's the first part of the book. And then the second part of the book is case studies.
Study after study of some of the headlines that hit the news, some of the cases that Philippa was involved in, some of the cases that I was involved with as a psychologist. Just looking at what was there in the firm that allowed things to go on, in some cases that encouraged bad stuff to go on, or that didn't prevent it. Like having somebody that you trust implicitly as your accountant and you don't require a second signature.
Well, that's just setting somebody up. If things start going awry in their life, you've just set them up to engage in workplace embezzlement that can go undetected. Yes, it is his fault or her fault, but it's kind of also your fault if you're the business owner and haven't set up better practices.
We have to think about the fact that we're working with vulnerable human beings with all of these strengths and weaknesses and that systems have a huge role to play and culture has a huge role to play in whether stuff is ethical or not. Even how easy do you make it to surface a mistake?
Cameron Passmore: I was just going to jump on that word culture because, Ben, as you know in our environment, mistakes happen in trading, right? And the team knows it's never a bad time to make the right decision. And often you could say, oh, the client would never notice, but everyone here knows take the high road, always do what's right.
You know what's right, do what's right. And it's just part of our culture, I believe, right, Ben?
Ben Felix: Yes, and part of our system is like we're not punishing people for bringing forward a mistake like that, which I think is how you could get to a place where they would want to hide it.
Cameron Passmore: Yes, the system will pay for the mistake, not the person.
Philippa Hann: But there's punishment and punishment. So there's punishment of telling someone off or saying you will pay for it and all the rest of it, but there's also punishment in a sigh. There's punishment in a look.
All of that stuff, we are sucking in this information all the time. But one of the red flags that you should be looking out for is if people are not making mistakes. Anyone who doesn't make mistakes, I'm going to be asking questions to them. What's going on here? Because it's not normal to not make mistakes.
Ben Felix: Yeah, that's interesting. Moira, something that you mentioned a couple of times now that jumped out to me, the way that I read through the book was it's often just regular, nice people who are doing bad stuff. But you mentioned psychopaths a couple of times.
How worried should people in everyday life, or consuming financial services, be about psychopaths?
Moira Somers: The evidence is that they disproportionately gravitate towards financial services and business.
Cameron Passmore: Where the money is.
Moira Somers: Because that's where the money is. It's like the old story of the bad bank robber getting caught. And he was asked, why do you keep robbing banks?
And his answer was, well, that's where the money is. So that's where the money is now. And we know that financial services are one of the top two targets for workplace fraud and financial misconduct.
Because that's where the money is. And so pure psychopaths often aren't very successful. But sort of psychopath light, the snakes in suits.
There's a book that's been written by a Canadian, one of the world experts on psychopathy is actually here in Canada, Robert Hare. And he talks about what does it look like when you're successful at this? And you tend to be charming.
You know how to find people's longings and tap into them. You know how to court friendship with the right people. You rope them in, you seduce them, or you belittle them if you need to.
It is a big issue. And they're the ones that tend to leave this trail of destruction, Ben. If they've got really big brains, they often try to mastermind equally big schemes to get people out of the money.
But boy, relationally, and from a mental health perspective, they wreak havoc.
Philippa Hann: We were discussing this the other day, Moira and I, because people are generally so relieved when the psychopath is no longer in the firm because they are so destructive. They tend to batten down the hatches, breathe a sigh of relief, provide a reference to say, well, they worked between this date and that date and they turned up. Actually, we're all a bit afraid to say, and I think they're a bit of a psychopath and I definitely wouldn't employ them because we're afraid of being sued.
And it is a particular problem because you will see that they will move from firm to firm until they find the opportunity or they'll get away with stuff and they'll get away with stuff and they'll take their yes people with them and they will sink to wherever they can actually get away with whatever it is that they want to do that provides them with what they want to get out of it. And it is a real problem because non-psychopaths are just so relieved to have them out of their lives that they walk away and it's understandable.
Ben Felix: Yeah, I think you referenced the paper, I think it's called The Market for Financial Adviser Misconduct, is that what it's called?
Moira Somers: The market, right?
Ben Felix: Yeah, that's right. Advisors gravitate to certain firms after having conducted misconduct and then they end up....
Moira Somers: They are recruited. It's not just that they gravitate towards it. They are recruited preferentially by certain firms who like to engage in exploitation of vulnerable people.
Cameron Passmore: How do we become ethical people?
Moira Somers: That's such a nice question after all this.
Cameron Passmore: Such an easy question, obvious one.
Philippa Hann: I have a theory around you look after your physical health, you look after your mental health and I think there is an argument to say, and that's what we conclude in the book, you need to be taking steps to look after your ethical health. Spending some time working on yourself is vital for you to be able to look after your ethical health. And there is this kind of triumvirate, if you like, of weirdly self-esteem.
Because if you have self-esteem, you can say, I don't want to do that, thanks very much, I'm good. People who lack self-esteem tend to go along to get along. So developing self-esteem and in order to develop self-esteem, so there was a research project that they did with some school kids.
They realized that kids who have high self-esteem have great exam results or have better exam results. So they went into schools and they bolstered up these kids and they gave them all this really huge self-esteem and they went and did their exams and they did no better than anyone else. What they realized as a result was that you don't get good exam results because you have good self-esteem.
You have good self-esteem because you've put the work in to have the exam results. So in order to get good self-esteem, you have to put the work in, you need to go and do the exams, you need to go and make sure that your private life is in good shape, that you are tackling the difficult things, that you're having the conversations, that you're attempting those things. So self-esteem is really important.
Self-compassion is really important, weirdly, that came out of our research. If you are able to say, well it's okay that I made a mistake because I'm a human being and humans make mistakes and it's okay to go and tell my boss, sorry I think I made a mistake, can you help me? And having enough compassion for yourself to say, can you help me?
I mean if someone goes to you as their boss and says, can you help me please? It's a totally different conversation. In what circumstances are you ever going to say, no I'm not going to help you?
And that self-actualization piece, so doing the work on yourself in terms of what are your values? What are your vulnerabilities? How are you going to deal with those?
What are your non-negotiables? Do you understand yourself? Are you doing the journaling?
Do you have your ethical sounding board around you? Do you know where to go and who to speak to? There is work which is involved in this, but that work, I promise you, well you know this, is so worth it.
Moira Somers: I love that answer and I think even the willingness to do those things is perhaps seeded in us way, way earlier. And I asked you Cameron, how did you become ethical? When we ask that of the regulators and I remember coming back and asking you this question, most people first of all point to people in very early childhoods.
They talk about their parents, people who taught them from a very young age. They talk about coaches being, part of a religious tradition. There's a foundational element to that that says there is right and there is wrong.
This is what to do and also this is what will happen if you don't do the right thing. That's part of the answer to how do we become ethical is that we are taught by people who have our best interest in heart and we are also modeled. There's a common saying that values are caught rather than taught and so we see people around us doing the things or not doing the things that they're counseling us to do and we see how that worked out.
Can somebody like me do this kind of thing too for good or for ill? I think then as we get older we do start to get explicit teaching especially if we are in a profession that has ethics requirements as part of ongoing certification or whatever. We start learning ethical reasoning.
We might be actually taught this is what you do here versus there. This is how to even think ethically. These are some of the thinking skills that are required.
Where we found that the ethics breaks down is that it doesn't sufficiently engage the heart. I hate to sort of do that dichotomy but in other words it doesn't teach us what to do when it's tough to do the right thing. It just says do the right thing.
Oh well thanks that was helpful. Don't cross boundaries. Oh great but what if I have or what if it feels like it is ethical to cross that boundary?
What if it feels cold and callous and absolutely heartless to tell a client that I can't do this thing? Well oh I'm either hooped or I'm helped because I've had training on what to do and I know who I can talk to when it's really really hard. It's not a solo sport.
Not from the earliest days that we're on the earth. We're always getting inputs on what it means to be ethical, to be a good person.
Philippa Hann: I really love that part of our book actually. Ethics isn't just about identifying when there's a problem and knowing what to do. It's about having the moral character to actually do something.
I think when we were looking at that it just kind of hit me like a freight train that it's so true not just knowing what the right answer is but having the character, the motivation, ability, desire to feel uncomfortable to do the right thing at the same time was such a big thing when we were writing that.
Ben Felix: One of the things that comes up in your case studies, Tom Hardin is a good example where when we had him on this podcast he tells his whole back story and you can tell he's like he's a good person.
He's raised well. If you asked younger Tom if he would do the things that he did he would say absolutely not but then he did them. What causes that ethical drift in people over time or what can cause it?
Moira Somers: If you talk to him you will know some of the story but that is kind universal. He was in an extraordinarily high pressure environment that did not tell people what right looks like here and what wrong looks like here and what to do if you are tempted to cross the line. There was no explicit ethical teaching from the firm leaders on down.
There weren't conversations. It was sort of an assumption well don't cross the line. He was what, 26 when he started?
Maybe not for that particular firm but right out of college he went into the hedge fund world and it's kind of known for its ruthlessness. So if you don't have people explicitly saying this is what right looks like and these are where your temptations are going to lie.
We had one of the people that we highlight. She was having dinner with the Bushes and the Reagans, these big names in American politics when she wasn't even 30 yet and it was just because of her job. It was all very heady and you start to have a sense of this is what normal looks like and she said the notion that huh they're 60.
I'm less than half their age. Maybe I shouldn't be having private tickets in the sports boxes. Maybe that isn't normative but again there was nobody that she could talk to about feelings that were sort of embarrassed about sometimes like what do I do with my envy?
What do I do with the fact that I am feeling really judgy about how this billionaire and their kids just think that they're all that and a bag of chips and that they can just treat us like we're nothing. What do I do with those feelings? What do I do with the fact that I want to be part of that family?
Where do we go with that? You can learn how to manage difficult emotions but the impulse to just swat them away like they're nuisance mosquitoes and that we shouldn't bother acknowledging is the very thing that leads us to act out of them at a weak point. So that's what Tom Hardin did.
He was surrounded by all of this. He wanted to help a friend. It was well motivated in the moment.
He wanted to help a friend who was in a great distress and then he realized oh my gosh my friend is making crap loads of money and I'm being all high and mighty and not acting on knowledge that I had. Well that sucks and so slowly this drift began and he did reach out to people but he didn't reach out by saying I have a dilemma. This is both sides of it.
He just talked to people who he says you know offhand they were some of the good guys but he didn't give them the whole fact case. They just said oh yeah you're fine. So we talked to people about how should you do a consult.
When you reach out for a consult what should that look like? What questions do you need to ask? What do you need to surface?
And part of that includes what would it look like if I were wrong? Right, like really looking for disconfirming evidence. So important.
Cameron Passmore: Why doesn't traditional ethics training work?
Moira Somers: For all of those reasons when you think about even maybe the last time you certified you did an ethics class for your certification they tend to kind of serve up ethical dilemmas on a platter. Like you know you're getting an ethical dilemma in classroom right? Well in real life they don't present themselves like that.
Like with some like unclean leprosy sign in front of them. They just sneak in. If you are not actively asking a question, is there an ethical issue here, and which of us routinely think to ask that, then it won't even be part of the reasoning.
Daniel Kahneman talks about this in the he calls it the WYSIATI problem. What you see is all there is. So you don't think to ask things like this product provider who's hyping this amazing new product.
What aren't they telling me? Who's benefiting from this complexity because it's making my eyes cross as I try to read the prospectus. Do I truly understand this or am I going to tuck and draft behind somebody else's assumed competence and superior knowledge?
Those are some of the things that we found were quite critical. Those were the factors that led people to just kind of go offline. So even if they'd been taught ethical reasoning at some point it doesn't even get triggered much of the time.
You don't even know that you've got an ethical dilemma. You skate across that line because you're too busy. You're incentivized to do so.
You're incentivized to look the other way. You don't know what questions to ask. I know you've done some really good conversations with Jason Pereira over the years.
He talks about that all the time. Most advisors do not really know how to analyze the quality of any of their offerings. They were not trained in statistics.
They don't know how to read the papers. They go to court and they feel prepared to attest to the fact that yes I was competent to do this and yes I was acting in the client's best interest and it all falls apart like a house of cards under cross-examination.
Ben Felix: Jason has great stories of being an expert witness in those cases and providing the evidence that the advisor did not in fact know what they were doing even if they thought that they did.
Moira Somers: So that gets us to you better figure out who you want to work for because there are a lot of places that don't have your back and saying my firm told me to do it is not a defense. Our hearts are particularly heavy for the young people like the one I mentioned at the outset of this call who don't know what they don't know. You know there's lots of people giving advice out there who don't even have the basic you know CFP qualifications or whatever that equivalent is in the UK, Philippa.
They might have a particular license to sell a particular thing but they don't know how to look at the overall picture and they don't know how to analyze what they're being told to do.
Ben Felix: I remember the first time that I understood how the RRSP and TFSA accounts work. Those are the registered accounts, the tax preferred accounts that we have in Canada, or at least two of them, and it was well after I had been licensed to sell mutual funds and insurance, which is terrifying. I remember that light bulb going off and being like huh it feels a little bit irresponsible that I was able to sell financial products without understanding this.
Cameron Passmore: I've had many similar confessions on the podcast Ben over the years. Like it's embarrassing to look back at my early years and how the industry worked back then. Totally embarrassing. It's ridiculous.
Moira Somers: And I wish I could say that's in our rearview mirror but in our book I kind of take on Canada's banks and some of the undercover investigations that were done very very recently and the follow-up investigations that were done by the securities exchange commissions and what changes as a result of these? Nothing. One-third of people who are selling products at banks acknowledge that they don't really know what they're selling or have sold things that are not in the client's best interest.
Philippa Hann: Yikes.
Ben Felix: On that topic, what role should regulators play in dealing with financial misconduct?
Philippa Hann: A bigger one. I come from the UK perspective. It's funny you see a cycle of a tightening of regulation in response to a scandal usually right?
Yeah so there's a big scandal. So we had the pension mis-selling scandal back in the sort of late 90s. They tightened regulation.
Then we had RDR in 2013 and they did upgrade the requirement for qualification. So I think joining the financial services profession is not the same as qualifying as a psychiatrist or psychologist or a lawyer or a doctor. The bar to entry is I think probably too low.
But also that tightening of regulation. We're now in the part of the cycle where the government wants growth and so they're looking to dumb down the regulations. But it isn't in the interest of the general investor who actually probably needs something really super dull, doesn't need to be invested in individual shares, they need to be in some sort of diversified global portfolio etc etc.
So the role of the regulator actually I think is to fight against that to lobby for tighter regulation and actually to be braver to remove people from the profession itself. I think we don't see enough of that. There's also another part of it for me around what the requirements are for insurance.
You can't be a qualified advisor without having the qualifying insurance. Now the detail of that qualifying insurance engages the insurers in this question of regulation effectively. Because if you can't get insurance then you can't be regulated.
But if we continue to allow insurers to exclude various products or services then they will continue to do that and nothing will change. But actually they're a really powerful agent for change. If your regulator refuses to allow your insurer to exclude certain liabilities then you can bet damn sure that those insurers will be all over you.
Because they don't want you to be sued, they don't want you to be fined. There is that side of it as well which I think is wildly underutilized by regulators globally. Look at the requirements for lawyers in the UK, insurers cannot exclude liability for products or pieces of advice and therefore you are at risk of not getting insurance.
If you can't get insurance then you can't trade and it is an extremely powerful thing. We are not using it well enough in the financial services industry, I believe.
Ben Felix: Really interesting point.
Cameron Passmore: Philippa, you mentioned financial problems earlier. What are some other warning signs of possible future misconduct offenders?
Philippa Hann: We talked about early years and so the book is written in large part for early years. People as Moira said, they are people who are bright-eyed and bushy-tailed. We talk about Evan in the book, who within a month of qualifying was in the middle of a global fraud.
His qualification lasted about nine months and he was in fact banned for life by the UK regulators. So early years is a red flag, being in debt is a red flag. All the vulnerabilities that we talked about earlier, being beholden to your boss to pay your mortgage is a problem, being a people pleaser is something you need to be careful of.
Being somebody who is low in self-esteem and therefore wants to buy in self-esteem by buying a Maserati or, insert name, a fancy car. I'm not massively into cars myself. Somebody who feels the need to keep up with the Joneses actually.
Somebody that hasn't done the work on themselves. Somebody who is tired and just wants the noise to stop. There's a whole gamut of really human biases.
And that's another reason why we wanted to write this book, because I think there's a whole plethora of information out there for the financial services industry about how our clients feel, how our clients behave, what biases affect, you know, scarcity, bias, all that kind of thing. And there's very little out there which focuses on the biases of the advisor themselves. That is part of the reason why this entire book is about where those vulnerabilities might be and gives people that guide path to try and identify where their own personal vulnerabilities might be.
One of the things we recommend is that you read this book within a book club so that you can have other people to talk to in a really honest way. I hadn't thought about that. Yeah, I did experience that.
And, you know, I love Ben's comment there about, it wasn't until I was so many years qualified that I realized I didn't understand the thing that I was selling. And there's a whole plethora, but we hugely recommend that people read this book with other people so that they can do that work together.
Moira Somers: At the other end of the spectrum from that bright-eyed, bushy-tailed, we highlight a category I've dubbed the "collapse incompetent." So this was somebody who might have been very, very good, but is being brought down by something, and it could be dementia. We've got lots of people working longer in this profession, and if they're head of the firm, who's going to tell them?
It's like the Aesop's fable, who shall bell the cat? I'm not going in there. Are you going in there?
That's a real risk factor that an impaired brain is not an insightful brain. You are not going to recognize when this stuff is happening to you. You've got to have people around who you can trust to say, I need you to let me know.
I remember when my mom said, if you see anything wrong with my driving, you let me know. And when I'm 80, I'm hanging up my keys. And gosh, if she didn't do that proactively.
But what do we do for our careers that is that open to feedback? Mostly we're trying to engage in impression management, not tell me the hard stuff. Another one that we took on, this is really a warts and all book, right?
Like we dig in and we diagnose in this book and we don't shy away from addictions, family problems. Those are other risk factors that can take people down. You know, when your marriage is falling apart, when your kids are acting in ways that are just horrifying to you, terrifying to you, embarrassing to you, it's really nice to go to work. It's so nice to go to work. People like you. They thank you. And work can turn into what's called an applauded addiction. Yay. Good for you.
Do more, do more. How about more? And so you end up on this hamster wheel of workaholism because you're really good at it.
And because you like it often a lot more than you like what's going on at home. Even the certified fraud examiner study that Philippa alluded to earlier, they do highlight family problems as being present in one in 10 of the cases that they work with. And certainly we know that if somebody's stumbling into work every morning, smelling like they just fell out of the whiskey barrel, you've got to have some way of saying, can we talk?
We need to talk and find out how to get support for people who need it, who are struggling.
Ben Felix: For the retail investors who are listening, I mean, short of smelling someone's breath to see if they've been drinking or asking if they're having family problems at home, what can retail investors do to identify high risk advisors before these issues materialize?
Philippa Hann: I always quote a statistic on this. So I was a lawyer for 20 years, sued a lot of finance people, a lot. So I've never sued a certified financial planner. And I have sued a lot of financial people.
Moira Somers: That doesn't mean they don't get into regulatory problems, but it doesn't tend to be massive.
Philippa Hann: In terms of retail investors being able to identify easily, there isn't a magic silver bullet in any of this stuff. If people have gone to the trouble of certifying themselves, then that is a really good sign. But, you know, I never ran out of work.
I had highly intelligent people who were my clients. There really wasn't an easy way to identify the bad guys. Again, that's why we wanted to write this book, because we want everyone to do the work on themselves rather than put the obligation on the retail investor.
I do think if your advisor is not talking to you about your entire life, then they should be. If they are just talking to you simply about investments and they've never found out about you and your goals and your hopes and your dreams and what you care about and who you are, then that isn't financial planning. That is just wealth management.
And you need to understand the difference between the two. And I'm not saying wealth managers are the bad guys, not at all. But as a retail investor, you do need to understand the difference between what you could get, what you should get, and what you would get if you went to somebody that was looking at you as an entire person, as an entire family, as opposed to a returns-first advice process.
Cameron Passmore: I'm just being more polite, taking the high road here. But what can advisors do to avoid becoming enamored with bad financial products?
Philippa Hann: They should be as boring as they possibly can be. It is true, isn't it? To be as boring as you possibly can be.
And only once you've exhausted the boring, which actually, you know, I now run a financial planning firm, and we do the most boring investments and advice ever. Most of our clients just don't need anything exciting. So we talk in the book about this complexity.
You know, it feels really special to be part of only a few people are being offered this particular exciting opportunity. And in the same way as the bank follows the money, it is your obligation to understand exactly how this works. And if it doesn't, if you don't understand it, even if it's the best thing ever, you should not be advising on it.
It is literally your job to understand exactly where that money is going, how it is making a return, making sure that that makes sense in your mind as to why that's making a return. If you've got cross-jurisdictional stuff, then why on earth are you looking at cross-jurisdictional stuff? Who is that benefiting?
If you have multiple layers of fees, who's getting paid? Why are they getting paid? Why do you need multiple levels of fees?
Why does it need to be this complicated? If you have cross-currency, why on earth if you've got cross-currency stuff in there, there's another red flag and another complexity risk. You should be looking at this, asking questions and being the most annoying person that you possibly can because your role is not to sell products.
Your role isn't to impress the person that comes to you with that product. Your absolute responsibility is to act in the best interests of your client. And if you wouldn't sell it to your family, why on earth are you considering selling it to any of your clients?
Moira Somers: Sing it, sister.
Philippa Hann: I just saw too much of this. Most all of my career was based around stuff that the advisors didn't really understand.
And then they didn't understand the downside and they couldn't talk about the downside and they couldn't anticipate the downside. And when the downside happened, they said, oh, well, nobody foresaw that. It wasn't our fault.
It was your fault because you were too greedy, client. And so I was doing my best. I gave you this great product and it's just not my problem or my fault.
Ben Felix: We are on the same page on investments should be very boring. You said you don't think your clients need the more complex stuff. I don't think most people need the more complex stuff that gets sold to more people than it should be sold to.
I'm curious, Philippa, in all the cases that you've seen, you talked about how there wasn't an obvious way to identify the people doing misconduct before the fact. Do you think there's a relationship though between the financial literacy of the victims and their propensity to be victimized?
Philippa Hann: It's a really interesting question. So I acted for anyone from car mechanics to teachers, to hedge fund managers, to doctors, to the whole gamut of financially sophisticated to financially unsophisticated. I acted for over a thousand British Steel, steelworkers who were very much not financially sophisticated.
I don't mean that in any rude way. They simply weren't. But frankly, who is sophisticated to the extent that you might need to be to second guess a complex product?
Who really is not in the financial services industry and advising on it understands how pensions work? I actually don't think that there is a direct correlation between financial sophistication and getting caught up in this stuff. It is far more emotional than anything else.
So when I talk about the steelworkers who were transferred out of their final salary pension scheme, that was all emotional. You don't want Tata to have your money. You want that to go to your family, don't you, when you die?
So it was all emotional decisions and this kind of white coat relationship. You know better than me. The regulator has authorized you. Therefore, you have a tick in that box. Therefore, I should trust you. You know what to do. And actually, it's kind of too difficult. I'm too busy doing my stuff. I want to delegate this.
I want somebody else to take responsibility for it. Let's go for it. And as I said earlier, I cannot tell you how many of my clients said to me, I never asked the question.
Ben Felix: I'm curious, Moira, what your experience is in similar situations.
Moira Somers: I think it's really hard for us to deal with competing experts. I can remember, I had just done a podcast with Robin Powell in the UK, who's very much into sort of the boring investments. I talked to him about some financial advice that we were being given as a family and all of the counterpoints that that advisor was giving for why the boring investments weren't good.
And he just went, oh my, I understand why it's hard to stand in the presence of somebody who's telling you why this time it's different, why this particular complexity of product is important for you and your family to have. And I will be behind you to make sure that we get out at just the right time if we need to get out. What do I know?
What I know now is I have probably 7,000 more hours of statistics training than that guy ever had, but I didn't have a designation and I wasn't in that role. And mostly we get just tired and we want somebody to take care of our stuff that we don't want to take care of. Somebody is saying that we could do better and that would make a difference in our life.
Those are very compelling words. They don't necessarily activate greed. They activate a sense of responsibility that you should do this thing.
I think as just regular consumers, research, research, research, you can find out if your CFP has any regulatory strikes against him or her. That's publicly available knowledge. You can find out who is this person behind the desk at the bank giving you advice and what allows them to be qualified.
The challenge as we know now, Ben and Cameron, is that it's often hard for people who don't have huge amounts of money to get neutral, good, high quality advice. Because they gravitate towards product providers that are incentivized to sell them the products that they have, that they own. So that's an issue.
We asked one question earlier about what would be some warning signs. This isn't necessarily for the investor, or the consumer, but one of the things that you need to know as a manager is that if your team, which was previously coherent and cohesive and they all seem to be getting along, is suddenly there's weird stuff going on. You're sensing alliances.
You're sensing discontent. Somebody might be reporting bullying or intimidation. That is a really, really good sign that you have a fox in the hen house.
That a psychopath has entered the mix or one of these snakes in suits. You need to investigate because they always cause difficulties in team functioning. If that's going on as a manager, take note. That's a huge red flag.
Ben Felix: Each of you came into this project with such unique experiences and backgrounds, a tremendous amount of experience, relevant experience to this topic, but what do you think your biggest learnings were from writing this book?
Philippa Hann: I'm not sure I could answer that. I would need another hour. There is the importance of relationships within and without the firm, the importance of knowing thyself and doing the work on thyself, the importance of understanding we are all vulnerable and one thing that we were really aware of as we went through the book was ensuring that people didn't read the book and say, well, that's okay because I would never do that.
I did this through writing this with Moira is to understand where my own personal vulnerabilities are and that we are all incredibly delightfully and wonderfully human and that being kind to yourself is a super important part of your ethical health.
Moira Somers: One of the big learnings for me was about something called the illusion of superiority or the better than average effect, which is the notion that we often rank ourselves as being better drivers, better health nuts, whatever. We see ourselves as being higher than average on a number of dimensions, which you can just sort of laugh at, but there's one domain where that illusion is on steroids and that is within the domain of morality. None of us want to contemplate the fact that we might just be normally ethical, average ethical.
Well, of course, we're better than that, but the moral humility is something that the regulators, when we came back and we asked all of the people who we interviewed for the book, including you, Cam, about how should one stay ethical, almost to a person, everybody said some version of there, but for the grace of God, go I. It could have been me and I'm just really lucky that life's circumstances and the supports around me have helped keep me upright. Moral humility is something to be cultivated, to be welcomed.
The second big learning for me is that we have to learn to tolerate being uncomfortable and to not treat it like it's a nuisance, but to treat that discomfort as meaningful data that we need to pause and name and explore. And then the third learning for me was unequivocally navigate your way to good employment. If you have any sense that something in your firm is whiffy, get out of there.
It will shape you in ways that you won't like, and it will not protect you if the regulators come calling. So find good people to work for, create your own firm someday if that's what it takes, but navigate your way, get the best qualifications that you possibly can for the position that you're interested in, volunteer, network, find people, and keep yourself financially free. Don't let yourself become overextended.
Of course, everybody in society is dependent on their employer to pay their mortgage, but work your way up to having some degree of choice over these matters.
Cameron Passmore: Our final question, how do you each define success in your lives?
Philippa Hann: I knew you were going to ask me this question because I've listened to your podcast. It was a really interesting thought process as I went through this, and I was walking along, mulling it over because, you know, thinking walks are really good. And the conclusion I came to was I'm living it. I am. This is success. I have a job that fulfills me, that is congruent with my values.
That feels amazing. I can push things forward. We held a big event the other day about climate change.
I can go out there and I can make that happen. That's amazing. I get to have written this amazing book with this amazing woman and ask this deep, deep question that we spent, I think, two and a half years, almost three years contemplating and talking to people. I have amazing friends. I have amazing family. I have enough money.
I don't lust after the Maseratis of this world. I get to go on holiday. I don't have to add up food as I go around the supermarket.
I can give, and I do, time and money. I am basically living my version of success. Thank you for asking that question because it allowed me to say, I'm living it. I am successful. And that feels absolutely amazing.
Moira Somers: You know, it depends on the day. Some days, success feels like, I remembered that password, finally. But on a more global perspective that Philippa was taking, it has so much to do with having some measure of control, I'm aware of, or freedom to choose.
And I'm aware of just how much privilege I have in being able to choose some of the things. And that in turn, choosing the right things opens you up to having more freedom to make good choices. But for me, it comes down to things like relationships, overachievement, wholeness, overaccumulation.
I really want to be a safe harbor and a force for good in this world. I want to not disappoint the people that matter to me, my family, my children, my friends. Not that momentary disappointment of, no, you can't have a cookie, but I want to be somebody that they are proud to have known or to be related to.
That alignment between values and action under pressure and the things that could be true of you no matter where you fall on the socioeconomic spectrum, those markers of integrity are what really stand out to me now.
Philippa Hann: Can I ask you two a question, if that's all right?
Cameron Passmore: Sure.
Philippa Hann: What stood out from the book to you two when you read it?
Ben Felix: The biggest thing for me was just the concept of behavioral ethics, which I think is a big part of what the book ends up being about. I think this idea that we can have a rational ethical framework and people can know what they should do and they can know right from wrong, but for various reasons, they can still end up doing bad things. As we talked about earlier, you need to have culture, you need to have systems in place, you need to check in with yourself and be very in tune with yourself to understand where your vulnerabilities are.
But just that concept of, just like with other parts of life, we can have rational frameworks for things and we can say what people should do in certain situations, but that's often going to be very different from what they will actually do. And understanding where those vulnerabilities are is really, I would argue, more important to acting ethically than understanding right from wrong.
Cameron Passmore: I actually sent myself a picture, took a screenshot of the moral operating system. I could tell you put a lot of work into that, at least I believe you did, and just to go through that wheel. Now you have to spend a little bit of time with it, but it's such a thought provoking each one of the pieces of pies on that wheel is pretty clear and can really cause someone to think and it's worthwhile time to be spent.
So I thought that was really nice to kind of encapsulate everything that was in the book, especially being in the industry. It's an interesting read and it's an easy read. So kudos to both of you on this great accomplishment. This was an enormous amount of work, clearly.
Moira Somers: Thank you for noting the behavioral ethics part of it, Ben. I think that that's been the part that's been missing for me within all of the financial ethics training is where are people in this? Obviously, I have a bias to that as a psychologist, but the regulators begged us to help people understand that it's their humanity that needs to come into play.
And that includes their own biases and things that you can't just will yourself out of. You need to learn how to work with them.
Philippa Hann: I love the fact that you're going to go and do the moral operating system work. We wanted to give people something actionable to take away because that behavioral ethics piece does need that.
Cameron Passmore: And your advice to read this as a study group, I think that's wise counsel.
Philippa Hann: Yeah. And we would love to hear from people as and when they do. I mean, we've sent this book out into the world.
Our greatest hope is that it actually makes a difference. And I think we said the other day, we will have failed if it's made no difference to the world. That's what we want.
So we would really genuinely love to hear from people as they run through the book and please do ask us questions.
Cameron Passmore: Terrific. Well, Philippa, great to meet you. Moira, you're a long-time friend, so great to see you again as always. Congrats on the book.
Moira Somers: Thank you so much.
Ben Felix: Thanks, guys.
Cameron Passmore: All right, Ben, incredible conversation, pretty incredible book. I think this is going to be widely read and picked up by the industry around the world. I mean, we jokingly were talking before we started recording, I asked them if they were on the proverbial circuit because each fall, at least from my take of the industry, the fall season really ramps up with events.
And I think that they should be, and I hope they will be on many stages around the industry for quite a while.
Ben Felix: As we were talking about that with them, I was thinking that we should be having our teams read this book or at the very least going through the thing that you talked about at the end of the conversation there, Cameron, about creating your own moral operating system, which they give step-by-step instructions for in the book. It's pretty cool. I've read it. I have not sat down and gone through the exercise yet, but it's 12 steps, I believe.
Cameron Passmore: It is 12.
Ben Felix: Guides you through thinking through your own moral operating system, which sets you up, as we talked about in the podcast, to deal with behavioral ethics, to set yourself up to be prepared to deal with the situations where ethics can lapse.
Cameron Passmore: To set you up, but also your organization, both structurally, but also culturally. Systems and culture are huge for this. And you have new people.
They talked about what kind of new people and the older people. The new people, they just don't know what they don't know. It can be unintentional bad behavior, but older people, depending on the incentive systems, perhaps can cause just the culture.
Ben Felix: Culture and systems, where you are, who you're surrounded by. I didn't say this when we were talking to Moira and Philippa, but I was thinking it. One of the things that I'm most proud of with what we've created at PWL is that we are the firm where people who want to be sure that they're doing the right thing, they gravitate to us.
Whether they're employees coming to work here or peers in the industry who look at what PWL is doing. I at least believe that we have put ourselves in that position.
Cameron Passmore: Well, I remember the conversation we talked about when one of our advisors joins saying, I just hope it's like how you sound on the podcast.
Ben Felix: Well, we hear that from clients too, for sure. As far as we know, and we have gotten this specific feedback, we are at least as good or whatever you want to call it as we present ourselves to be on the podcast.
Cameron Passmore: Anyways, if you're in the industry, I would argue this is a must read book. I think it's a good read for anyone who's in the working world. If you're interested in the subject, of course, but certainly if you're in this industry.
We also had a good conversation about product providers. This goes back to a few episodes we've had. You're talking about ETF slop, for example.
Why do advisors choose certain products and how does the industry get pitched certain products?
Ben Felix: There's a whole section of the book. We've got financial professionals, financial advisors that they can enter into misconduct that harms investors. You can also have financial product providers who can enter into misconduct or borderline misconduct when they're selling financial products to financial advisors who will then go and sell the product to their clients.
A lot of that comes back to complexity, selling the idea of exclusivity, all that kind of stuff.
Cameron Passmore: Do you want to give us some more background on Moira?
Ben Felix: Moira, as I mentioned in the introduction, she's a clinical neuropsychologist, family wealth consultant, and executive coach.
She's Canadian, based in Winnipeg. She is an incredible resource for wealthy families and people. She works a lot with advisors, but she also works directly with clients.
When we at PWL realize that we are out of our depth from the perspective of psychological issues related to money with a client, we will bring Moira in as a third party and she will engage with clients directly to help them work through those issues. She's been a fantastic partner for us in that sense. A very interesting and unique skillset that she has that she brings to writing this book, also just her as a professional. She's a fascinating person.
Cameron Passmore: Philippa, who we just met for the first time today, we've known Moira for a long time, but we just met. She's a practicing lawyer with 20 years specializing in financial service litigation and dual qualified as a solicitor and a financial advisor. She's now recently become the CEO of Paradigm Norton, which is a UK financial planning firm.
She's basically gone from suing financial advisors to leading a financial advisory firm. We talked about the large case she did on behalf of British Steel. She regularly speaks at industry events and is well-known, certainly in the UK financial planning industry.
They tell at the front end of the conversation, as we know now, how they actually met to decide on writing this book, which I thought was super interesting too. Just two minds meeting at a conference and there you go. There's the work that comes out of it.
Ben Felix: They realized they complemented each other in a way that they were going to be able to create some information that was unique, which I think they've been successful in doing.
Cameron Passmore: Awesome. Anything else to add, Ben?
Ben Felix: No, I'm kind of tempted to go through the moral operating system steps, but it's probably too much to do in the audio format. I suggest people pick up a copy of the book and go through it themselves. It's a really interesting exercise.
Cameron Passmore: Agreed. Okay. Great conversation. Thanks, Ben.
Ben Felix: Thanks to you, Cameron. Thanks everyone for listening.
Disclaimer:
Portfolio management and brokerage services in Canada are offered exclusively by PWL Capital, Inc. (“PWL Capital”) which is regulated by the Canadian Investment Regulatory Organization (CIRO) and is a member of the Canadian Investor Protection Fund (CIPF). Investment advisory services in the United States of America are offered exclusively by OneDigital Investment Advisors LLC (“OneDigital”). OneDigital and PWL Capital are affiliated entities, and they mostly get on really well with each other. However, each company has financial responsibility for only its own products and services.
Nothing herein constitutes an offer or solicitation to buy or sell any security. Occasionally we tell you not to buy crappy investments in the first place, but that’s not the same thing as telling you to sell them.
This communication is distributed for informational purposes only; the information contained herein has been derived from sources believed to be “truthy,” but not necessarily accurate. We really do try, but we can’t make any guarantees. Even if nothing we say is fundamentally wrong, it might not be the whole story.
Furthermore, nothing herein should be construed as investment, tax or legal advice. Even though we call the podcast “your weekly reality check on sensible investing and financial decision making,” you should not rely on us when making actual decisions, only hypothetical ones.
Different types of investments and investment strategies have varying degrees of risk and are not suitable for all investors. You should consult with a professional adviser to see how the information contained herein may apply to your individual circumstances. It might not apply at all. Honestly, you can probably ignore most of it.
All market indices discussed are unmanaged, do not incur management fees, and cannot be invested in directly. Which is a shame, because it would be awesome if you could.
All investing involves risk of loss: including loss of money, loss of sleep, loss of hair, and loss of reputation. Nothing herein should be construed as a guarantee of any specific outcome or profit.
Past performance is not indicative of or a guarantee of future results. If it were, it would be much easier to be a Leafs fan.
All statements and opinions presented herein are those of the individual hosts and/or guests, are current only as of this communication’s original publication date. No one should be surprised if they have all since recanted. Neither OneDigital nor PWL Capital has any obligation to provide revised statements and/or opinions in the event of changed circumstances.
Is there an error in the transcript? Let us know! Email us at info@rationalreminder.ca.
Be sure to add the episode number for reference.
Participate in our Community Discussion about this Episode:
Papers From Today’s Episode:
https://zbib.org/754fbba6cf814f179d662d9cd7bd3060
Books From Today’s Episode:
The Fault Lines of Finance: Understanding and preventing financial misconduct by Philippa Hann, Moira Somers — https://www.amazon.com/gp/product/B0GPDHGH8K/?maas=maas_adg_54BAEC77E3D41A94AB054EADA1E259EE_afap_abs&ref_=aa_ma
Links From Today’s Episode:
Stay Safe From Scams — https://pwlcapital.com/stay-safe-online/
Rational Reminder on Apple Podcasts — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder on Spotify —https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=fe7f60349b584026
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on YouTube — https://www.youtube.com/channel/
Benjamin Felix — https://pwlcapital.com/our-team/
Benjamin on X — https://x.com/benjaminfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/