-----Introduction----As we have seen in the past weeks, sometimes the companies and the

professionals of the financial industry have the temptation to do unethical

things or take unethical decision in order to fulfill goals, like sales objectives
or maybe launch new products before others, in order words, sometimes they
do unethical things in order to be competitive.
Being competitive is a key activity to succeed in this world and because of it
the companies, not just the financial institutions, are trying to enhance their
competitiveness through some activities like marketing, which is one of the
most important activities regarding this. Because of that it is imperative to
understand the role of the marketing activities in the financial industry and
the ethical implications they have regarding the consequences that unethical
marketing practices may have.
First we must understand what marketing is, because maybe must of us
relate marketing just with advertising of a product or a brand, but it is a more
complex activity. In fact according to Brenkert, Marketing is a set of activities
designed to create, communicate, and convey, through voluntary
exchanges, something those targeted will value, and to do so in ways that
fulfill the objectives of marketers and/or their organizations (Brenkert 2008,
13)
This makes us clear that marketing is a strategically activity or area within
any company, because through it, an organization targeted the people to
whom they will address the product and decide the way they will sell the
product to this people, so it includes (product development, advertising, sales
strategy, pricing strategy, the image of the product), they try to create a
relationship between the product and the customers. But it is not simple
decisions, so they recollect information of people behavior and preferences.
We must question, Are they really creating value this practices to the
customers?
It has to do with people behavior, feelings and preferences, Marketing must
imply ethical implications. More important in financial industries, where the
financial services are the way people manage and get access to money.
Marketing of financial services must be done ethically in order to protect the
relationship between companies, customers, and society, and its impact on
them. A good example of how marketing can go astray is 2008 global
financial meltdown.
So we will focus on this presentation in the analysis of the marketing of a
specific service in the 2008 financial crisis. But first we must set the base
framework for the analysis :
--------Ehitcal Framework ------*Norms identification: Identify basic values and norms that should be
followed.

It is important to note here that this point is not just referring to the legal or
regulatory framework that FI must follow, it has to do with values considered
them as a higher standard compared with the laws and regulations. in other
words Not because something is legal it means that it is also ethical. even if
the laws have their basis on ethics.
At the beginning marketers sought to satisfy customer needs and providing
profits to the business at the sometime but as i mentioned before, there is
more competition so they have taken more aggressive actions and can forget
sometimes the part of creating value to customer by satisfying a need.
As an example of the values we could look at the American Marketing
Association Code of Ethics witch includes principles and values of doing
marketing with honesty, fairness, respect, transparency, trust and citizenship.
(This imply NOT using the coercion or manipulation to influence in people
decision.). Some people may say that a COE is just aspirational rather than
duties but it is not, these principles are our obligations and duties as
professionals.
Another important in this point is that marketing imply a voluntary
exchange, and regarding this exchange 3 components must taken into
account to question the autonomy and self-direction of it:
*Capacity Component: this mean not to take efforts to coerce, manipulate
or influence people to act in way other than they choose, in other words to
respect their capacity (and right) to make a decision.
*Cognitive Component: meaning that the customer must understand what
he or she is exchanging (buying) and the conditions of the exchange (terms
and conditions interest rates, changes in the interest rates, payment plan)
Here honesty, fairness, trust and truthfulness are relevant. (Fulling disclosure
and clients best interest)
*Relationship Component: the financial exchanges may be short or log
term so we must take always seek the best interest of the clients which imply
do it with honesty, trust, respect, confidentiallity (standard III CFA)
*Norms application: how the norms and values will be applied in the
marketing of the financial products and services.
Now we have the norms and values we must, as a professionals, applied
them wisely this include competency and do it always looking the clients
best interest.
We will review specific situations in order but in general we must address the
following point in the norms application:
->Relevant facts of each issue,
->Pertinent ethical norms and values
->Possible courses of action
->How everyone is affected by the courses of action

All of this in order to apply them well.

*Norms promotion: We can see this part from two points of view, the 1 st is
from the financial institution or the companies and the second from ours or
the professionals.
Companies: How could we encourage people to do the ethical things?
Employees: The organization within which people work mud be one in
which they can make and act on ethical decisions (Robert W., 200)
Examples and analysis
Now that we have set the ethical framework we will view an example of the
lack of responsibility in the marketing practices and how the role and
implications in the financial crisis of 200, as a general picture in which the
marketing of mortgages, credit cards and payday loans play an important
role in the crisis framework by creating the environment which contribute and
worsen the the financial crisis.
First we have some of the ingredients of this crises like credit cards,
mortgages and unsuitable clients, but by themselves are not a problem but
what happen when you combine all of this with an unethical environment
which is in this case unethical marketing practices, in the sale of this
products? (along with the home loan brokers, FI competition, regulation and
laws, etc)
*First we have the mortgages which are a really important asset and in so
many cases maybe the only a person might get. We could assume that in
some point of our live we want to have our very own house and better if it is
the house of our dreams.
*Also we have the credit cards which in the American case is a really useful
tool to maintain and improve their life style, so many people want that one
too.
*And finally we have the unsuitable client (which is the special ingredient in
the recipe) which in the past was excluded of the targeted people as potential
clients because of its lack of creditworthiness.
In this situation the clients with good creditworthiness were already served,
by this mean they already have a mortgage and a credit card which they
could paid, so the market also was very competitive, and the FI wanted more
profits so they began to relax their policies regarding the credit placement
and began to offer the products to people who was less creditworthiness (not
at the button) and this yield to higher interest rates which was also very
attractive to the FI so they continue to relax this policies in order to have
even higher rates of interest. so they began to offer this product to very risky
people.

They also started to violate to seek the clients best interest by encouraging
their clients to buy and sell the securities in a irresponsible way, and design
complex products that people did not understand and the worst of all
misrepresenting them in order to engage the client with the products. All this
as we saw in the past classes combined with bad risk management and also
marketing practices.
All this yield a financial meltdown and as a consequence a lack of financial
resources for those who needed and combined with the bad reputation of the
FI followed by the situation which result in people distrusting the FI.
At this time many of the people go to the payday lenders in order to meet
their financing requirements and this just have the effect of worsen the crisis
trapping the people in a cycle of debt.
All this violate professionalism (Standard I of CFA)
*Mortgagee offering (Stardart III: Duties to our clients Suitability and Standart
6 Conflicts of interest not to disclose the arrangements)
*Financial advisers violating the clients best interest by encouraging to their
clients to buy and sell sec ties in an irresponsible way. (Standart II: Integrity of
Capital Markets violation through market manipulation)
So now we understand this general picture we will review the mortgages
specifically:
------------------------------------Mortgages, as I said, is the way a person or a family get access to their very
own house and was a key factor, which contribute to the financial meltdown
of 2008. So we will consider 3 things:
->relation of the mortgage broker or lender to the borrower
First I must say that between1970-1980 it became possible to sell the
mortgages to other lenders who would package them into mortgage-based
securities that other financial institutions and wall street might buy. Which
means that in the past lenders worried more about been paid by borrowers
but not anymore (as long as you could sell the debt). Also this partially
explain why the institution were less worried about addressing mortgages to
people who could not afford (meaning target those who are unlikely
customers because they would be injured by marketing exchange due to their
vulnerability or lack of resources)
No Doc loans (SISA od Countrywide)
What happen next? they launch new no doc products) which were loans
that doest not verify at all the creditworthiness of the client.
Higher rates of interest loans and Not hold but sold the home loans.
So as we all know in order to justify this loans they increased the interest
rates because of the risk the institution were assuming. But we must see the
bright side, right? This means higher return products and as I said they could
packaged and sell them to other FI or investors (the secondary market which

also was misrepresented and not looking for the clients best inverts
(investors)? (all sell at premium prices)
This looked perfect for some FI and because they were not keeping the debt
what could possibly go wrong? So they focused more and more in getting
higher interest rates (higher return products in the secondary market) and
create a compensation plan for brokers (and sales man) based on new loans
with higher interest rates. One of this examples were the Yield spread
Premiums and Prepayment Penalties) (Standart I Profesionalism
Misrepresentation, Standart III Disclousure to our clients, Stantard 6)
This yielded to the next point:
.>the role of informed decision (suitability) which has to do with the
marketing of the financial crisis by the brokers and lenders.
This compensation programs were an incentive to develop more complex
products (which the customers did not understand so we could say they were
using the information asymmetry and agency theory in their advantage) one
of this were the: Adjustable rate mortgages (ARMs) (Standart I Profesionalism
Misrepresentation, Standart III Disclousure to our clients)
These products were sold by brokers and lenders using misrepresentation
because they never explain how this works, and only showed the very low
initial interest rates and payments they will be paying at the beginning, they
realize the truth until the first loan statement (too late)
-The lack of understating combined with process by which they accrued a
mortgage, that was also not the best because in their loan documents there
was not a full disclosure. All this was worsens by the advertisement and
telemarketing showing just the convenient information. This yielded to bad
decision-making. But how did they could even sleep at night?
-Caveat emptor (lack of professionalism because they were a
summing that al the responsibility of buying something was not he
side of the buyer) [of douse supported by big bonuses]
But what else all this environment, actions and decision making yielded?
->The deception and manipulation of some borrowers that occurred
getting then to finance their homes.
-Loan flipping (take new loans in order to enhance the conditions or payments
of the current one, by giving your the accumulated equity or seek to
refinance only a few months after countrywide or the loan brokers with whom
it had business parent ships (80 percent of subprime mortgage involves
refinancing existing ones (legal helpers, 2009)
-Play on peoples desires for special vacation or extra space in their home.

What could be done better?

Disclose of the loans terms by an worksheet showing the comparison of the
loans
Disclose fees in advance
Stronger enforcement of the penalties to the brokers and lenders
Professional relationship
Look for suitability of the clients