Are There Any Guarantees for Ethical Behavior?

Not hardly.

But you knew that already, didn't you?

Saturday's New York Times carried a sort-of mea culpa column by Ron Lieber, noting that he has in the past recommended that investors rely on money managers who "make money only through fees that clients pay directly to them" (rather than those who accept commissions from, e.g., mutual funds). Many of these personal advisers belong to NAPFA, the National Association of Personal Financial Advisers, which, like Lieber, criticize those who accept commissions. NAPFA also promotes "its adherence to a 'fiduciary' standard, where members act only in a client's best interests."

Or perhaps we should say: "where members claim to act only in a client's best interests."

Because, as Lieber points out in his column, the Securities and Exchange Commission has filed action against James Putnam (and another employee of Wealth Management in Appleton, WI), for allegedly receiving more than $1 million in kickbacks for certain client investments.

Who is James Putnam? A past president of NAPFA.

Ooops.

After the Madoff scandal, this may seem like small potatoes. But the point is, there are no guarantees. Even the most honest-seeming people may be rascals. After all, church priests and bookkeepers take off with parish funds all the time (you think I exaggerate? A quick Google search turned up, just this year, a case from Gaylord MI in which a former First Congregational Church employee allegedly embezzled $50,000, a case from Philadelphia in which a former First Corinthian Baptist Church allegedly embezzled more than $100,000, and a story from West Palm Beach FL about the conviction of a Roman Catholic priest for stealing nearly $500,000 from his parish).

All of this explains why I'm such a firm believer in strict regulation and severe penalties. Neither will guarantee good behavior, but they make it easier for people to be honest. Think of regulation as being like the lock on your front door: it won't prevent a determined thief from getting in, but it'll remove the temptation that an open door might offer to the more-or-less honest...