ethics

The Fiduciary Rule Is Under Review — How Will This Affect Your Investments?

Matt Bell — Fri, 03 Mar 2017 10:30:38 +0000

If you have money invested in a retirement plan, such as a 401K or an IRA, chances are high you'll be impacted by an executive order issued recently by President Trump.

It centers on the "fiduciary rule," one of former President Obama's initiatives that was scheduled to go into effect on April 10th. President Trump put the brakes on it by ordering the Labor Department to study the issue further.

Whether the rule goes into effect or not, you would be wise to understand what all the fuss is about and how it could affect you.

Fiduci…What?

Financial professionals, such as financial planners, insurance agents, brokers, and others, are legally bound to adhere to certain standards of conduct, the highest of which is a fiduciary standard. Anyone working under that standard, which today includes Certified Financial Planners and Registered Investment Advisers, is required to act in their clients' best interests, detail all commissions and fees, and disclose any potential conflicts of interest.

Others, including many brokers and life insurance agents, are held only to a suitability standard. That means if two financial products could meet a client's needs, but one would pay the financial adviser a higher commission, he or she could recommend that product to their client.

The Obama administration estimated that biased advice steering people to needlessly high-cost, high-commission financial products and services costs investors $17 billion per year in fees and lost investment income. Its fiduciary rule would require any financial professional recommending retirement-related financial products or services to adhere to a fiduciary standard.

What It Means for You

Here are some steps you can take to help make sure your retirement accounts are run in your best interest, rather than the managers'.

If you participate in a 401K, 403(b), or other workplace retirement plan, ask questions about how your investment options were selected. Some plans have a very limited set of choices or offer mutual funds with high fees. In particular, take a look at the "expense ratio" tied to the funds. That's the percentage of the money you invest in the fund that goes toward the expenses of operating the fund. For example, if you buy shares of a fund with an expense ratio of 0.73%, for every $1,000 you invest, $7.30 will go toward the fund's operating expenses. (See also: Watch Out for These Sneaky 401K Fees)

According to Morningstar, the average expense ratio is .78% for an actively-managed mutual fund and .18% for a passively-managed (index) fund. If the funds in your plan are significantly higher than that, ask your plan administrator to explain why.

Find out if any of the companies behind the funds in your plan participate in "revenue sharing agreements" in which they pay to be part of your plan. Often, these are higher-fee funds.

A good resource is Bright Scope, an independent evaluator of workplace retirement plans. See if it has evaluated your employer's plan, and if so, see what it says about the fees charged by your plan.

Employees at some companies have even sued their workplace retirement plans over what they felt were needlessly high-cost investment options. In 2015, the U.S. Supreme Court gave employees the right to do so.

If you work with a financial planner, insurance agent, or other financial professional, ask whether the person you work with adheres to a fiduciary standard. As awkward as it may be, ask about the commissions or other compensation they receive from the products or services you purchase through them. Before committing to working with someone, interview a couple of others and compare costs.

Three Situations That Warrant Extra Caution

Be especially careful about deferred annuities, mutual funds with a "front-end load," and 401K "rollovers." In each situation, you may be especially vulnerable to receiving biased advice. (See also: 3-Step Plan to Choosing a Mutual Fund)

With deferred annuities, you invest now in order to receive a stream of income in your later years. Deferred annuities usually provide salespeople with high commissions and come with especially onerous surrender charges if you decide to cancel your contract. Be very cautious. Generally, the type of annuity that makes the most sense is an immediate fixed annuity purchased around the time of retirement, and even then only with a portion of your nest egg. If someone is recommending an annuity for you and retirement is far down the road, at very least, ask lots of questions about fees, commissions, and surrender charges. And carefully weigh the comparative advantages of investing in mutual funds outside of an annuity instead.

Some financial advisers exchange their advice for the commissions they receive by recommending mutual funds with front-end loads, or sales fees. If you put $1,000 into a mutual fund with a 5% front-end load, that means you've lost $50 right out of the gate. At a time when there are countless no-load funds available, including target-date funds that automate some of the most important steps an adviser would do for you (such as, determine and then manage your asset allocation), it's difficult to imagine a situation where it would make sense to pay such fees. (See also: Commission Free ETFs: A Great Option for Cost Conscious Investors)

When you leave your employer — whether for retirement or to move on to another company — plenty of brokers would love to have you rollover your 401K money into an IRA at their firm. Such rollovers often do make sense because an IRA will give you more investment options. Just be sure to ask questions. Are there account fees? Is investment advice available to you from a fiduciary adviser? Compare the costs and services of at least three brokers.

Bottom Line

No matter what happens with the fiduciary rule, it's in your best interests to require all financial professionals you seek advice from to adhere to a fiduciary standard. At very least, they should fully and clearly disclose any fees, commissions, and potential conflicts of interest.

This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Will Your Brand Boycott Actually Make a Difference?

Dan Rafter — Mon, 12 Dec 2016 10:30:24 +0000

Interest rates aren't the only thing on the rise after Donald Trump's election night win. Threats of product boycotts are soaring, too.

Breitbart News, for example, is encouraging its readers to boycott Kellogg's after the cereal maker pulled advertising from the conservative site. Supporters of the incoming president also threatened a boycott of Pepsi after mistakenly believing that the company's chief executive officer said that Trump supporters should take their business elsewhere.

Opponents of Trump have threatened their own boycott of shoemaker New Balance after its vice president of public affairs told The Wall Street Journal that the company's officials believe that "things are going to move in the right direction" after the businessman's election. The comment actually referred to the debate over the Trans Pacific Partnership trade agreement, but many in the anti-Trump camp thought the shoemaker was tossing out a "support Trump" message.

Will any of these boycotts work? Will enough consumers stop buying Cornflakes or Diet Pepsi to actually hurt the companies making them?

And if you stop buying these products, will you make a difference?

The Struggle to Make an Impact

Consumers have vowed to boycott plenty of products. But only a small number of these boycotts actually work. Those that do succeed, according to a story by the Harvard Business Review, are highly strategic and have clear goals. They want to force a company into a specific concession, such as eliminating a controversial ad campaign or removing a potentially harmful ingredient from their products. But boycotts that simply call for consumers to stop buying a certain brand forever? Those rarely have a long-term impact.

Boycott's Long History

The word boycott as a form of shunning actually came into being way back in 1880 in County Mayo, Ireland. Back then, Captain Charles Boycott — a land agent working for an absentee landlord — threatened to evict 11 tenants from the land he managed when the landowner refused to reduce these tenants' rents by a high enough percentage after a particularly poor harvest.

The community took on an organized and effective campaign to shun Boycott, with local business owners refusing to trade with him and the postal worker even refusing to deliver his mail. That first boycott was effective. Many that have followed have not been.

The Guardian has reported that while boycotts might make an initial dent in a company's sales, they rarely impact these firms for the long haul. The Guardian pointed to the 2003 U.S. boycott of French wines. Many U.S. consumers were furious with France's refusal back then to support the war in Iraq. So they decided to stop buying products from the country, including its wines.

The boycott caused a quick 26% drop in sales of French wine in the United States. That sounds impressive — but the sales drop was a blip. The Guardian quotes Larry Chavis, a professor of entrepreneurship at the University of North Carolina at Chapel Hill, who said that sales returned to their normal trajectory just six months after the boycott began, meaning that the long-term effects of it were nil.

This is an example of the type of boycott that rarely works: one without a clear goal. French wine sellers had no power to change their country’s stance on the Iraq War. The boycott, then, had little chance of forcing a change in France's policy.

What's more effective is when boycotts ask for a specific change while at the same time attacking a company's brand through social media, traditional media appearances, and large protests. In such boycotts, the actual boycotting of a company's products might have little long-term impact on sales. But the negative public relations can hurt a brand's image enough so that the company eventually makes a change to appease protesters.

The Nike Example

The Guardian cites the boycott of shoemaker Nike in the 1990s as one of the most successful. Activists heavily criticized Nike for relying on child labor, and calls for a boycott did hurt the company's sales. But the real long-term impact came from the negative hits against the company's brand image. This has forced Nike to work hard ever since to rehabilitate its image, change its labor practices, and exert greater oversight over its shoe production.

There are plenty of boycotts going on right now, with Ethical Consumer currently listing more than 65 active boycotts. There are boycotts against ice cream maker Ben & Jerry's because of its contractual relationship with an Israeli franchise that sells ice cream in Israeli settlements in the occupied West Bank and East Jerusalem; an ongoing boycott against oil giant BP for the Deepwater Horizon spill in the Gulf of Mexico; and one against Chevron Texaco for allegedly dumping toxic waste in the Ecuadorean Amazon rain forest.

Will these boycotts accomplish their goals? The odds are against them. But there are always those boycotts that do make a difference.

Consider the recent boycott against Orlando amusement park SeaWorld. Animal welfare activists, including PETA and the Captive Animals' Protection Society, demanded that SeaWorld stop holding and displaying orca whales, saying that the captivity was harmful for these animals. In March of 2016, SeaWorld announced that it would end its orca breeding programs. The park said that it will also phase out its orca whale shows. Ethical Consumer has listed this boycott as one of the most successful.

Like this article? Pin it!

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

25 Ways to Be a Better, Happier Person

Paul Michael — Thu, 20 Mar 2014 10:18:50 +0000

We're already well into the New Year, and maybe your diets have already slipped. Your dinner plates are going from green to progressively more light brown. Your crispers are emptying as the pantries are filling. You don't need to slip back into the same old routine as the last year, though. There are endless ways to bring you fulfillment that don't cost money or make you feel defeated if you're not perfect. Here are 25 ways to be a better person. Many of these you may already do, and others you might not have considered as ways that could greatly shape you and your daily experience with others. (See also: Get Back on Track With Mid-Year Resolutions)

1. Be a Role Model

How do you want to be viewed? What would you want others to model from you? Be the person that inspires others, even if it's just having good table manners or opening the door for people.

2. Be a Better Child to Your Parents

As if the guilt could ever wear off! How would you want your children to appreciate you? Remember all those things you said you'd do differently as you were growing up? Now's the time to start realizing them.

3. Be Accepting

This doesn't mean you have to agree or understand. But if you're accepting, people will be more open and honest with you.

4. Be Adaptable

Life throws curveballs, and your busiest days rarely turn out exactly how you would like. If you let go of your expectations, being adaptable is incredibly freeing and gives you great perspective.

5. Assume Good Intentions

This is key. If you can assume the best intention in people's words and actions, you will get hurt less, be let down less, and become less defensive.

6. Volunteer

Obvious, of course, but it doesn't have to be some huge commitment. Volunteer to drive your kids home from the bus stop on a rainy day (or other neighborhood kids). You've taken something off of someone's shoulders, and hey, they just might be there for you when you need one less thing. (See also: Unexpected Benefits of Volunteering)

7. Be Attentive

It feels so nice to be on the receiving end of someone's attention. When it's your turn to receive, you'll be glad. Karma…what goes around really does come around.

8. Be Coachable

Every single adult you come across knows something you do not, guaranteed. Be coachable and learn, and in return you are paying respect to someone else and making them feel valued. Both sides win.

9. Be Cooperative

Learn to get along with others, or no one will want to work with you. You should be open to new ideas and should not snarl at the word compromise.

10. Be Curious

Not only could you discover something you love, but looking at the world with such wonder again…oh, what a feeling.

11. Be on Time

Show respect for someone else's time. It will make them think highly of you, and by organizing your day you'll be less stressed yourself. Start by setting your clocks and watches 10 minutes fast. (See also: How to Always Be on Time)

12. Be Empathetic

Empathy can validate someone else's experience and establish a connection that sympathy may not. Learn to empathize, even if you have completely different opinions. The paradigm shift will do you good.

13. Be Enthusiastic

Enthusiasm can raise your mood and anyone around you within a 10-foot radius. Wouldn't you rather accomplish goals with enthusiastic people? You don't have to be keen as mustard, but don't be a too-cool-for-school curmudgeon either.

14. Put Your Past Behind You

Stop reading the chapters of your past. Whatever you did — or whatever was done to you — is done. It's not you today, and it's not who you want to be tomorrow. (See also: 8 Steps to Forgiveness)

15. Be Present

Don't only play for the future with grand ideas of "One day I will…" This is it; the moment is now, and there's no better time to take it.

16. Compliment Others (and Yourself)

It looks good on you. If others feel good around you, you reap rewards, too. Even the simplest things, like a nice comment on a shirt or blouse, can help. It starts with you. Be good to yourself so you can give to others. After all, you deserve it as much as anyone else. (See also: How to Give Better Compliments)

17. Be Gentle

To sugarcoat doesn't mean lie; it means being honest without being harsh or causing defensiveness, which will only shut people down. Being gentle assures that people are more able to receive your advice.

18. Look Up

You are missing out on connections and the way it feels to hold your head up high. Looking up also raises your mood. Looking down makes you feel down. Try it; it really works.

19. Be Quiet

Listen. See what happens. Hear what you might otherwise miss.

20. Sing Out Loud

Because it feels good, and it's a release, and whether you're a good singer or not, someone will be amused in some way, even if it's just you.

21. Be Purposeful

Pursue a cause that's higher than yourself. Broadening your scope will make you so much more grateful about your life as it is.

22. Be Resilient

It is not normal to be good at something as soon as you start. So don't give up, be resilient, and be impressed with how far you can come in a short amount of time.

23. Take Responsibility

What a different place the world would be if we each took more responsibility.

24. Don't Victimize

Observe yourself and see what you can learn and how you can be better. The buck stops with you.

25. Be Self-Reflective

Be gentle with yourself. Observe your behavior and thoughts objectively. In this way, so much is possible to change our experience.

What are you doing to become a better person? Tell us about it in comments!

Like this article? Pin it!

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Things I Just Won’t Do to Save Money

Paul Michael — Mon, 11 Jun 2012 10:36:08 +0000

Hi, I’m Paul, and I have a confession. I’m frugal. Sometimes, really, really frugal. You only have to ask my long-suffering wife and kids for confirmation. But although I have been known to buy only items on clearance, with coupons, I am also someone who has frugal morals as well. I won’t steal; I have yet to pop a grape in my mouth from the produce section, although I see many people doing that. I won’t con people, or do any kind of “severe bending of the rules.” All in all, I keep my frugality above board, even if it means I spend a few extra dollars here and there. Here’s my top 10 sins that I won’t commit in the name of being a money-saver. (See also: The Ethics of Free: Is It Wrong to Get Free Stuff?)

1. I Won’t Ask For a Cup of Water and Then Get Soda

Well, these days I’m almost completely off soda anyway, but even when I was a sodaholic I would cringe when I’d see people ask for water, then fill up at the soda fountain. OK, so the restaurant does make a very sizeable profit from selling sodas, which means some people think they have the right to rip-off the restaurants. That’s just wrong though. In fact, when the restaurant gives you a free cup for your water, they’re losing money — those cups aren’t free to them. So when you add insult to injury, and start filling those free cups with whatever you like, it’s just not very sporting at all. Some restaurants have had to resort to putting in a big WATER button instead of the usual small water switch under the lemonade, because it was way too easy for people to get away with the stealthy “free drink” switch. Don't do it. But please, just drink water anyway. It saves you money, it’s better for you, and your conscience will be clean.

2. I Won’t Cram Hundreds of Free Ketchup Packets Into My Pockets

Staying on the restaurant/fast food theme, I overheard two people in line talking about how they never have to buy ketchup any more. “I just grab a few handfuls of those ketchup packets every time I’m in here, and squeeze them into the bottle at home!” Well, yayee for you! Although these packets are there to be taken, and thus “free,” they are not supposed to be there to help skinflints save a few bucks on a bottle of ketchup. If people continue to do that, we’ll soon be at point where “would you like to add ketchup to your order for five cents?” will be a standard question at the checkout.

3. I Won’t Take Home Toilet Paper From Work

Or lotion. Or coffee filters. Or plastic knives and forks. I won’t do it because it is literally stealing from your employer, which is wrong on so many levels. But it also makes everyone else pay the price for your own selfishness. When things start being “liberated” from work, the company takes notice. And they can take measures that remove those privileges from the rest of the staff. Nice toilet paper is replaced with the nasty waxy stuff that’s about as effective as a sheet of aluminum. Coffee is no longer supplied. Hand lotions and sanitizers must be provided by the staff. And all because a few rotten apples are too cheap to get their household supplies. Don’t be a work thief, please.

4. I Won’t Be An Extreme Couponer

I’ve written a whole article on this to explain my reasoning, but in a nutshell I think it’s a horrid mixture of greed and obsession. I’m not going to clip coupons for eight hours a day and spend four hours checking out. I’m also not going to clear the shelves of hundreds of items I don’t really need, or will ever use, just to save some money or see $1.24 on the register after ringing up 100 bottles of shampoo. The sooner these coupon manufacturers put limits on these things, the better.

5. I Won’t Under-Tip at a Restaurant

I have never been a server or worked behind the bar. I never want to do either. It has to be one of the toughest jobs out there for the money. Most of the time, these people are run off their feet all night and get paid less than minimum wage, because the tips will make up for the shortfall. Well, not if really cheap people don’t tip. I’ve heard stories and seen photographic evidence of people leaving tiny tips, like $1 on a $50 check, or even worse, leaving advice. That’s nasty, and it’s completely unfair. I will tip a minimum of 20% on the check, more if the server is really good. And if I have a Groupon or coupon, I always tip on the amount before that is deducted. Only if I get really, really awful service do I reevaluate. So far, in my 11+ years in the USA, I have yet to tip below 15%, and on the few occasions I did go that low, the service was pretty lousy. But who knows if that person was having a crappy day and has kids to feed.

6. I Won’t Use My House as a Piggy Bank

I have seen way too many people get burned in the refinancing and home equity traps. They get a little bit of equity in their homes, and they instantly refi and pull out that cash. Of course, when the market crashed, so many people got in real trouble due to their refinancing mistakes. Well, I won't do it. I will refi to get a better rate, of course, or to use the equity my home has built to eliminate mortgage insurance. But I won’t dip into the home equity fund. My only exception to that rule would be to do something that would add that equity back into the house, like a basement remodel. However, most of the time, those projects do not put back into the home what you have taken out.

7. I Won’t Risk “Dodgy” Food

Sell-by dates are not all they’re cracked up to be. Usually they err on the side of extreme caution, and you have several days as a buffer. There are other ways to detect the quality of the food, and if I have a sneaking suspicion that it may be off, I bin it. I have risked it before and have suffered some nasty food-poisoning episodes because I refused to throw out a few bucks worth of chicken or ground beef. Honestly, if in any doubt, throw it out. Bad smells, strange colors or hues — they are big danger signs.

8. I Won’t Avoid Flushing the Toilet

I’ve heard that you can save a bunch of money by not flushing your toilet after every use. What’s the old saying? Ah yes — “If it’s yellow, let it mellow. If it’s brown, flush it down.” Well, I did a little digging, and yes, not flushing every time can save you money. According to The Simple Dollar, it’s roughly $7.66 per year! Now, that is a savings, but I’d rather give that up than have to live with the nasty odors emanating from the smelly toilets in my home.

9. I Won’t Wash My Own Car

What?!! Is this really coming from someone as frugal as myself? Well, yes. Here’s the thing. I have to figure the cost of washing the car and the time it takes, and then figure out what kind of money I can earn by doing freelance writing. It takes me at least 45 minutes to wash the car. A car wash is roughly $10-$15. I earn considerably more than that when I freelance. And when I’m not working, which isn’t often these days, I like to spend time doing stuff with my family (and sometimes, dare I say it, on my own). I’d rather be out playing in the park, or at a movie, or coloring, or anything other than washing the car. Now, if the family actually wants to spend time together soaping the car down, fine. But usually, we have better things to do. I do mow the lawn. That takes me 10 minutes, and it’s not anywhere near the same kind of hassle.

10. I Won’t Underuse My A/C and Heating

I find it so odd that people pay thousands to have A/C installed, and then never turn it on. Or they set it to some silly temperature like 79 degrees because it saves money, and then put fans all over the house. In winter, I have visited friends who have a cold house and wear sweaters and two pairs of socks. When I ask them to turn the heat up for the sake of my kids, it’s like I asked them to hand over their first-born. Now, I know when money is tight, you have to take some tough measures. If I were living alone, I would probably have no problem using a fan instead of A/C, or wrapping up warm in winter. But when the family — my family — is involved, I am not going to cut corners in those areas. I definitely monitor the A/C and heating use, but I will not deprive them of a comfortable home environment.

So, that’s my list. Are there some things you just will not do to save money? Do other people mock you for these beliefs? Let us know.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why Doing the Right Thing is Right for the Bottom Line

Patricia Lotich — Sat, 05 Mar 2011 22:57:53 +0000

Link:

http://www.openforum.com/idea-hub/topics/lifestyle/article/why-doing-the-right-t...

Dictionary.com defines integrity as, “adherence to moral and ethical principles; soundness of moral character; honesty....” Integrity in a marriage would mean maintaining a trusting and monogamous relationship whereas business integrity would be business practices that are guided by a code of ethical conduct.

The success of any organization is built on the confidence and trust of employees, customers and the general public. The only way for an organization to gain that trust is to demonstrate honesty and integrity in everything the organization does. Organizations that operate this way do so because it is the right thing to do and not because of legal requirements. We are all familiar with the fall of Enron and Bernard Madoff's Ponzi scheme. As their unethical business practices came to light, these very successful organizations promptly collapsed.

Integrity affects every area of business operations and all customer groups.

Integrity in Accounting Practices

Businesses owe it to their employees, customers and shareholders to be honest and transparent with their finances. Organizations that “Cook the Books”, whether by design or by accident, perform a disservice to everyone. Sloppy accounting is as harmful to a business's ability to perform as the malfeasance of the Enrons and Madoffs. Any organization, large or small, that hopes to stay in business must practice proper and responsible financial management.

Truth in Selling

Organizations that aggressively market their products and services are obligated to deliver exactly what they promise. Whether it is a print ad in a magazine or a video ad on television, the product described should always be what is delivered to the customer. We responded to an advertisement for a new car once. The ad showed a great price, but when we got to the dealer, we learned that they were “out” of that particular car and tried to sell us a different, more expensive model. We bought neither, of course, but the cynical "bait and switch" ploy convinced us never to visit that dealer again.

Management Integrity

From customer service to employee benefits, management practices are at the core of organizational integrity. Unresolved product or service issues can tarnish the reputation of the organization, and employees recognize the importance of management doing what’s right by "walking-the-talk" and following up on promises made. Google was named one of the top 100 employers in 2010. One of their signature practices is allowing engineers to devote 20% of their time to projects of their choosing. The program reflects Google's famous slogan, "Don't be evil," and the company's positioning as an innovative leader in everything it does.

Service Integrity

The integrity of an organization is best experienced AFTER the sale. For example, we built a house a few years ago and the customer service with the builder was impeccable until we closed on the property. Every request and inquiry was followed up with quick and friendly responses. However, once we closed on the property, it was difficult to get phone calls answered and construction issues resolved. Following up on service quality after a customer makes a purchase is critical to maintaining and growing a customer base.

Personal Integrity

Business leaders should maintain honesty and integrity in every aspect of their lives. When leaders fail to live up to high ethical standards, the reputation of the organization is harmed, as well. Dennis Kozlowski, the former CEO of Tyco, and former Tyco finance chief Mark Swartz are perhaps the poster children for failed ethical leadership. In 2005, both were sentenced to up to 25 years in prison after stealing hundreds of millions of dollars from the company. The scandal made public its executives' poor business decisions – and profligate spending – and generated negative press for Tyco, which affected its value and profitability.

Product Integrity

Product integrity provides confidence to purchasers of products and services. This is where brand recognition and public perception comes into play. The homebuilder we used was one of the largest in our area, which is why we chose them. When service after the sale was less than optimal, it spoke volumes to us about the product integrity of this builder. Had we known what we know now before the sale, we may have negotiated differently or made sure the contract had language to support response to issues after we moved in the house.

4 Ways to Incorporate Integrity into Business Practices

How does an organization make integrity a key part of its everyday practices?

1) Develop a Values Statement that demonstrates the values that the organization operates by. A Values statement helps employees understand the principles used in decision making.

2) Create a Code-of-Conduct Statement. This document establishes boundaries for employee behavior.

3) Train employees on the importance of honesty and integrity. This should be done as part of the new employee orientation process.

4) Create confidential processes for employees to report unethical behaviors. This is important so employees are not hesitant to report questionable or inappropriate business practices.

Business integrity should be key part of an organization’s culture, demonstrated in every business practice. Organizations that strive to do the right thing because it's the right thing to do survive and prosper. Those that don’t, don't.

This article is from Patricia Lotich of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Ethics of Free: Is it Wrong to Get Free Stuff?

Craig Ford — Wed, 18 Aug 2010 12:00:11 +0000

I love to get free stuff. Don't you?

The problem with free is that it doesn't mean something is really free. It just means that someone else has paid for the product or service instead of you.

Recently, I was surfing around the Wise Bread archives, and I came across a post on how to get movie rentals for free. Well, that sounds interesting, right? As I read through the comments, I found that some readers were really appreciative for the tip while others thought taking advantage of the coupon codes was either cheap, an assault on capitalism, or downright immoral.

Then the same discussion came up again. While dealing with the topic of student loan debt forgiveness for people who work for non-profit organizations, it was clear that some individuals are concerned that free to you means I get to pay (through tax dollars) for that item — in this case, student loans.

Should we take advantage of free offers?

In order to answer that question, we would first need to evaluate why some products are offered free.

A free item might be free because the cost is included in your purchase price. So, for example, when you buy French fries at McDonald's, you can get ketchup free because the cost is already included in the price of the fries. These free items are not intended to replace your personal supply of ketchup. Thus, it would be inappropriate to get ketchup at McDonald's if you are not a paying customer.
A free item might be an incentive to try to get you to try and ultimately purchase a paid product. When you sign up for a new service, they might give you a 'free trial.' Many of the products I've purchased had an initial free trial. In each of these cases, they want you to enjoy the free product because if you like it, you'll remain a paying customer. In these cases, the free offer is limited in length or functionality in order to give you a taste of the product.
A product might be free as a part of a rewards or thank you promotion. Some restaurants give you a dessert or meal for free on your birthday. On other occasions, if you buy four nights, you get one free. In each of these cases, free is a reward for extra spending or simply a way to say thank you.
A free item might mean that someone else has paid the cost of the product. At times, I get free books to preview. That just means the publisher has covered the cost of the book. When we receive gifts, they are free to us, but the price was paid by another.

A cautionary note: When you are dealing with a company, it is best to assume that something is free in order to generate revenue. There still is no such thing as a free lunch.

A few weeks ago, my wife was told about a company that is offering free cloth diapers to missionaries. Since we are missionaries who use cloth diapers, my wife and I had several discussions about the ethics of getting free diapers.

Here's how our conversations went:

Wife: Did you know we can get free cloth diapers?

Me: Do we need free diapers?

The next hour of conversation revolved around the question, "Is it right to get free diapers when you are able to afford to buy them?"

The issues that seemed to complicate the discussion is that when we bought our home school curriculum last month, we applied for a 20 percent discount offered to missionaries. That, so I said, was different than getting free diapers from a company. But, is it? Should you apply for a discount when you really don't need it? We both wondered: What is the difference between getting something free and getting something at a discount?

Ethical approaches to free

Essentially, this discussion rests on the question of responsibility.

Is the company who sets the terms and conditions responsible for changing their policies if there is an obvious loophole?
Is the individual responsible for recognizing that his conduct obviously isn't what the organization or person intended by the promotion?

At times I've used both approaches. When I went to graduate school and college, I applied for as many scholarships as possible. I never asked if I could afford it. I just thought if someone was giving away something and I was eligible, I would accept. On other occasions, I've decided that I have had my reasonable access to a free product, and even though I could keep getting free services, it would only be right to pay for the product.

Personally, I've found the Golden Rule to be a helpful guide — do to others what you would want done to you.

Is the person who offers something free ultimately responsible for making the right criteria, or is the person who applies for something free responsible?

This article is from Craig Ford of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Dissatisfied Do You Need to Be to Use a Satisfaction-Guaranteed Rebate?

Linsey Knerl — Sun, 21 Jun 2009 02:55:46 +0000

Many brands offer them: satisfaction-guaranteed rebates. While this helps to build reputation in the industry and gives genuinely disgruntled consumers an easy fix for their problems, is there a possibility that it’s too easy to get money back on the products you buy? We look at both sides of the issue to help decide when “attainable” may not always be “ethical.”

What is a Satisfaction-Guaranteed Rebate? Quite simply, it is an offer by a brand to give back the full purchase price of a product, assuming you aren’t satisfied. In many cases, this may mean that the product didn’t perform as promised, was defective, or had gone bad before purchase. While many companies offer you the opportunity to provide product feedback, these types of rebates are different, because they are usually fulfilled in the same way as a regular rebate. (You fill out a form, mail it in with your proof or purchase, and wait for a check to arrive.)

What’s the big deal anyway? Apparently, many people use money-back guarantees or satisfaction rebates to get money back on all kinds of purchases – even those they weren’t particularly dissatisfied with. While a conscious shopper may find that they are not happy with a purchase, search out a solution, and find that there is money-back guarantee on the product, others profit by following the process backwards. They scan deal and freebies boards, looking for new satisfaction-guaranteed rebates to print off. Then they go to the store and make the purchase, knowing in advance that they will redeem the rebate – even before they have a chance to try and be disappointed in the product.

It is important to note that there is such a thing as a regular rebate. “Try Me Free” offers are regularly offered with the objective of getting people to do the very thing I mentioned above: buying products specifically so that they can redeem the offer. The hope is that a consumer segment that hasn’t yet tried the product will get a taste (a free one) and come back as a paying customer. The satisfaction-guaranteed rebates, however, are designed more as a consolation for a bad experience.

So what is ethical? And what’s not? While I most certainly won’t try to be the rebate police, I have my own opinions on the matter. So do other money-saving gurus from around the web. Here is what they are saying:

Mercedes from Common Sense with Money says, “I am of the opinion
that only when you are dissatisfied you should submit these. Doing it
under other circumstances is against the intention of the manufacturer
and parallel to coupon fraud in my book.”

Tara from Deal Seeking Mom agrees. “I rarely use them, and
I don't promote them on my blog at all. I've seen a number of other sites
promoting them recently as a means to get free products, and I don't condone
these practices.”

Lynnae from Being Frugal states, “I think if people continually abuse the
consumer satisfaction rebates, companies will no longer offer them. I think
it's a great thing, if you're truly dissatisfied, though I've never used one.”

It sounds like most everyone is in agreement then, right? Wrong. Sam Pocker of RetailAnarchy.com, and author of the book by the same name, defends the position that the rebates are there for the taking. “The number of people who do this to excess is relatively small, I believe it is around 1% of all consumers at best. Only 5% of all coupons issued in the marketplace are redeemed in the first place.” Sam also says that no notice is taken of anything written on the form beyond the name, address, and dollar amount (the reason given for dissatisfaction is meaningless.)

So we know what consumers think of the practice of redeeming satisfaction-guaranteed rebates when there truly is no dissatisfaction, but what do manufacturers think? We can only guess (none would answer my request for comments.)

According to Sam, they could care less. Others, like ConsumerQueen.com’s Melissa Garcia, aren’t so sure. She works for a convenience foods company and is concerned about the rise in claims – which could possibly be a signal of false complaints. It is her opinion that this may be the reason that some companies no longer offer them.

Where do you stand? Have you ever redeemed a satisfaction-guaranteed rebate? If so, were you really dissatisfied? Or do you prefer to go about the traditional methods of rebating and product feedback?

This article is from Linsey Knerl of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't treat businesses like people

Philip Brewer — Tue, 18 Nov 2008 19:29:01 +0000

When you fall short of meeting your obligations, it's natural to feel bad. In fact, it's natural to want to not only meet the letter of your obligation, but also the spirit: to do what it takes to make the other person feel fairly treated. These feelings are very human, and they work well when you're interacting with humans acting as individuals. When you're dealing with businesses, though, they work against you--and businesses will take advantage of that.

Nobody is much surprised when a corporation meets its legal obligations but goes no further. People like to suggest that going beyond is often good business--a reputation for providing good service is worth something--but they don't think it's a moral failure when a corporation does only the legal minimum, because everybody knows that corporations are not moral entities.

With people, though, the rules seem different.

You see this distinction especially starkly with bankruptcy. A person will often feel shame at the idea of bankruptcy. Obviously, a corporation does not. (The owner of a very small corporation might, but that's just another example of confusing the person with the business.) When a corporation files for chapter 11 and the court tells it that it doesn't need to honor its gift cards or its pension obligations, no one imagines that they'll be able to get better treatment by making the corporation feel bad.

Corporations, on the other hand, use this sort of moral suasion to try to control people all the time. You see it, for example, with debt collectors--they try to establish something that seems like a personal relationship, so that the borrower feels bad about being unable to meet his obligation.

You see it most often with employees, because the constant interactions between employee and manager create a circumstance where it's natural to feel a personal relationship.

When a friend of mine quit one job to take another, his old employer offered a large raise and said a lot of nice things about how important he was and how highly valued his work was. My friend was feeling bad about leaving and seriously considering changing his mind, because he wanted to do right by his moral obligation to his old employer, but then remembered that he'd had a salary review just a few months before, where the focus had been on his shortcomings and where the employer had put a dollar figure on the value of his work that was quite a bit lower. Neither those critical statements nor the new complimentary ones were a reflection of what the corporation actually thought--after all, corporations don't think. Rather, both were an attempt by management to get what they wanted--my friend's work at the lowest possible cost.

Another friend was hesitating to move to a much better job, because when she'd been hired, her boss had asked her to "commit" to stay until the end of a project and she'd done so. I pointed out that there were many things her boss might have done to give her incentives to stay--most obviously, he might have given her a contract with a completion bonus. Not only had he not done that, he hadn't given her a contract at all--and I'm sure he wouldn't have "committed" to keep paying her until the end of the project even if business turned down. He had asked for a commitment because such a request costs nothing, and just might work.

Corporations would rather not do expensive things like paying competitive salaries, giving regular raises, and offering a pension to reward long-term service. That costs money, and corporations would rather not spend money. So, they usually start by trying to use a sense of personal obligation to get people to do whatever will help the business. That's why they ask people to "commit" to the company--they do it because they know people will feel obliged to stand by their word, and because guilt is much cheaper than paying a project completion bonus.

This is true for relationships besides just that of employee--customers, borrowers, clients, and venders are all subjected to similar efforts, where the corporation tries to structure things so that people feel (and behave) as if they were in a personal relationship with the business. They do this because it works. It works because people have trouble distinguishing between their legal obligations and their moral obligations, they allow their feelings to push them into making poorer choices.

Because this is all a deliberate effort by corporations to control you, it's sometimes not quite clear what kind of relationship you're in. After all, even though your counterpart is a corporation, your interface with it--boss, loan officer, salesperson--is a person. The whole thing is structured to make you feel uncomfortable if you leave him or her in the lurch. Don't be fooled.

None of this is to say that you're not stuck with your legal obligations. I'm not suggesting that you cheat or steal or even engage in sharp practices or take advantage. But don't imagine that you have a moral obligation to a business. Your moral obligations are to people.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Frugal... or just plain wrong?

Andrea Karim — Wed, 06 Jun 2007 17:14:59 +0000

You know what I love? Getting something for nothing. Oh, it's rare. It's also sort of greedy and raises all kinds of ethical questions. How far would YOU go to save, or make, a dollar or two?

Here are some examples of 'something for nothing' that fall into a morally gray area. I'm not endorsing, advocating, recommending, encouraging, or promoting any of these, but I'm curious as to how our readers feel about them. Like taking an extra piece of candy from the porch bowl in Halloween, everyone probably has a different perception of what constitutes right or wrong.

Where would you draw the line on these examples? Would you...

1. Sneak into a movie? I've done this before, but it's been a while. Like the first time I skipped class, I remember it being a very thrilling experience. But is it ethical? If the movie that you sneak into has been in the theater for a while, and barely anyone is going to see it, would that be better than sneaking into a movie that might sell out (and thus, robbing someone of their paid seat)? What if you went to see one movie, and bought a huge tub of popcorn and a large drink and candy (that's, like, $30 right there). Does the theater OWE you a decent movie at that point? What about sneaking your own candy and pop into a movie theater?

2. Download music online? For free? Is it stealing? Are artists suffering? The big production companies want you to believe that when you download a song from a peer-to-peer site, you are wrenching a sandwich directly out of Sheryl Crow's hand, but is it really such a big deal? Or is it the principle of the matter?

3. Freeload of your neighbor's TV channels? It can be done, and is done. But is it wrong?

4. Siphon your neighbor's wireless internet? Hey, if your neighbor can't be bothered to put rudimentary security into place, such as WEP or network passwords, they're just begging to have their bandwidth used, right? Right?

5. Keep the incorrect change? You gave the cashier a ten, and she gives you change for a twenty. Do you say anything? Or take the money and run?

6. Underpay if you are undercharged? You buy something at a store or at a restaurant, and realize that you were charged for something much, much cheaper. Do you go back and try to sort out the mess? What if you've already gone home before you realize that a mistake was made? Do you go back and try to correct it, or is it too much of a hassle?

7. Take the money that your bank accidentally deposited in your account? Do you withdraw it and buy some kick-ass jeans? Is it worth the risk? The bank might eventually figure out what they did wrong. But you've always been a good customer, so are you entitled to benefit from someone else's mistake?

8. Scalp tickets? Sure, you were planning on going to the (insert hip band name here) concert, but turns out it's the same weekend as your cousin's wedding, and you are technically in the wedding party, so it's bub-bye to those hard-won tickets. Shouldn't you stand to profit just a little from them? Especially seeing as how SO many people want to go see the (hip band name) concert, and are WILLING to pay you much more than you paid for them - hey, that extra $100 can go towards the wedding present! Or is that wrong?

9. Accept freebies for listening to a timeshare spiel? This one was covered well at Queercents. Is it OK to accept an all-expenses paid trip in exchange for listening to a sales pitch for something that you have no intention of purchasing?

10. Expense a non-business dinner? You just got back from a business trip and want to take your significant other out for a nice dinner. Since your better half dropped you off AND picked you up at the aiport (thus saving the cost of a cab or long-term parking), should your business foot the bill for your dinner out? You just got back. AND on the trip, you only ate at Subway. So, they can put out for two steaks, can't they? They're a big corporation?

11. Treat the medicine cabinet at work as your own free pharmacy? Hey, those pills will expire if someone doesn't use them, and Advil is kind of pricey. Plus, if work wasn't causing your ulcers, you wouldn't need to use all of those sample antacid packs, right? No?

12. Fudge coupon codes? There are many, many coupon codes that are easy to fake. Like those codes that you get when you complete a customer satisfaction survey. Or those codes that come in Suze Orman's books. If you can fake it and get away with a free burger every day, should you?

13. Go grocery sampling? My dad can happily feed himself for free just walking around Costco, tasting the various creations that are hawked by kindly hair-netted grandmothers. He never buys any food, because that's Mom's realm. Is Dad out of line? What about the people that sample non-sample food, like trail mix at Safeway?

14. Cut-n-buy? I really like fennel. And carrots. But when it comes to buying these things by the pound, I fantasize about cutting off the tops of these damn things, because I can't eat the tops, and they cost me extra. Is it OK to yank the greens off the tops of the carrots or hack the fennel down to the edible part before weighing and paying?

15. Take home office supplies? It sounds clichéd, but who hasn't taken a mechanical pencil from the supply closet? Or some Post-its when they run low?

16. Read all your magazines at Barnes and Noble? I used to do this as a poor student - oh, how I longed for a subscription to French Vogue, but the price was just ridiculous. But, for the price of a latte, I could spend a Sunday afternoon flipping through pages of couture.

17. Sell your neighbor's garbage? No, I'm not talking about celebrity personal belongings auctioned off on eBay, but this happens a LOT where I live. We have one guy in particular who spends a lot of time sifting through our trash and taking what he thinks he can sell. My garbage can, with it's doggie poop bags, is probably disappointing, but the huge apartment bin across the alley is a veritable treasure trove of resellable goods. On one hand, he's reusing stuff that might otherwise go into a landfill. On the other hand, he's digging through my damn garbage can.

18. Pick your neighbor's fruit? That almost sounds dirty, doesn't it? I used to live next to someone who had a tree growing part way into an alley. The tree produced really nice fruit every spring, and the neighbor never picked it, just letting everything go to waste. I would walk by and occasionally take an apricot or two. It never occured to me to ask until someone pointed out to me that what I was doing could be considered stealing. I became slightly paranoid, and never plucked an apricot again. But was it such a big deal?

19. Be a cheap-ass at Starbucks? Order an espresso shot. Go to the condiments counter, fill the rest of your cup with milk, and take it home and nuke it.

20. Lie about your income to get cheap medical services? Planned Parenthood is remarkably lax in their rules for assessing a person's payment options on a sliding scale. Tell them that you're only making 12K a year, and your reproductive needs are taken care of for much less than it would cost anywhere else. What if you don't have insurance? What if you make a donation to Planned Parenthood years later to compensate?

(Photo by Alejandro Forero Cuervo.)

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: