UP TO CODE

This is a regular column in Contingencies. Written mainly by members of the Actuarial Board for Counseling and Discipline, "Up to Code" articles reflect the wide variety of issues that are brought to the ABCD’s attention during the request for guidance and complaint processes. 

July/August 2022

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CONFLICTS OF INTEREST AND CODES OF CONDUCT

Godfrey Perrott 

 

Conflicts of interest are one of the challenges that professionals face quite often, and they are difficult to address. They are very rarely black and white, but rather shades of gray. Sales are fraught with conflicts of interest. We are all familiar with the situation where someone who will receive a substantial commission if a sale is made represents themselves as an independent adviser guided only by the client’s best interests.

Actuaries are lucky. We have a Code of Professional Conduct by which we are bound, and it addresses conflicts of interests. More later.

Codes of conduct are ancient. They have guided practitioners over the centuries. I would like us to consider the Hippocratic Oath, which is the foundation of ancient and modern medicine. It is a fascinating document. It was written around 400 B.C.E., but it is still in use today (in a modified form). A few years ago I heard (with great pride) my daughter, a brand-new nurse, pledge to a modern version when she graduated.

I suspect we have all heard “First, do no harm”—a clause in the original code. The full clause is “First, do no harm. Within that, act only to benefit my patients” (my paraphrase). However, some of the other clauses are less well known. They include:

  • I will treat my teacher with honor, and in turn teach new entrants into the profession for no compensation.

  • I will carry out my life and my art in purity and according to divine law.

  • I will act only when qualified.

  • I will not take advantage of the power of my position.

  • I will respect my patients’ confidentiality.

 

This is strong stuff that has stood the test of time.

We actuaries also have a Code of Professional Conduct to which every U.S. actuary agreed to be bound when they applied for membership in any of the five U.S. actuarial organizations (Academy, American Society of Enrolled Actuaries [ASEA], Conference of Consulting Actuaries [CCA], Casualty Actuarial Society [CAS], and Society of Actuaries [SOA]). The Code has 14 Precepts. Many of the precepts are parallel to, or are implied by, the Hippocratic Oath.

Conflicts of Interest  

Ketanji Brown Jackson and Clarence Thomas—both associate justices of the Supreme Court—have been in the news recently over potential conflicts of interest. I had read (to my surprise) in a reputable newspaper that the Supreme Court does not have a code of conduct. A code of conduct would likely help each of them decide whether they should recuse themselves. This is literally true, but I have learned that 28 U.S.C. § 455, which applies to all federal judges, states in part:

“… [A]ny justice … of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.”

This will help both justices, but it is pretty vague.

Code of Professional Conduct   

 

Our Code is much better and contains the following Precept:

Precept 7

An Actuary shall not knowingly perform Actuarial Services involving an actual or potential conflict of interest unless:

  1. the Actuary’s ability to act fairly is unimpaired;

  2. there has been disclosure of the conflict to all present and known prospective Principals whose interests would be affected by the conflict; and

  3. all such Principals have expressly agreed to the performance of the Actuarial Services by the Actuary.

 

This is a strong requirement, especially point C.

 

The Code has many benefits. I would like to focus on two:

  1. It is the Bill of Rights for our users. We do not work in a vacuum (or an ivory tower). We provide opinions and calculations to non-actuaries who rely on them, often to make very significant decisions. In this situation, the profession needs a Code to state what our clients can expect, and what the standards are to which we, as actuaries, are held.

  2. The Actuarial Board for Counseling and Discipline (ABCD) is the complaint desk for the U.S. actuarial profession. If any user of actuarial services feels they have received poor service from an actuary, they can file a complaint with the ABCD. The ABCD takes each complaint seriously. Ultimately we either dismiss the complaint, counsel the actuary involved, or recommend some form of discipline to any U.S. organization to which the actuary belongs. (That is the limit of our power—making recommendations for discipline; we cannot discipline an actuary.) Before we can recommend any disciplinary action that we feel is appropriate, we have to find:

    • The actuary violated one or more Precepts of the Code; and

    • The effect of this violation was material.

 

This strikes the right balance. Actuaries know what the rulebook is (as codified in the Code). Some parts are obvious: Precept 1—act honestly and with integrity, Precept 2—do work only if you are qualified, Precept 3—comply with actuarial standards. Some are less obvious. But no matter what, the actuary is put on notice of what the profession and our customers expect.

It helps the actuary in their day-to-day activities. The actuary can be assured that if a complaint is filed against them, they will be judged against a set of objective standards. The ABCD is not a Star Chamber. “Yon Cassius has a lean and hungry look” is not the way the ABCD operates, nor the way actuaries should be judged. I am sure I have offended several actuaries during my career, and I would certainly not like that to be the basis of a disciplinary hearing.

When the Code was introduced in 1992, there was significant pushback. Most actuaries valued their independence fiercely, and certainly did not want anyone looking over their shoulder and possibly criticizing their work. The attitude “I am a professional, I do good work, and no one is entitled to second-guess me” was prevalent. Fortunately, the leadership of the profession realized that this thinking was misplaced. For the profession to thrive, it had to place a high priority on protecting our customers. The preamble to the 1992 Code states:

“The Precepts of this Code of Professional Conduct identify the professional and ethical standards by which the actuary is expected to serve the public interest.”

This gets it right. Our clients need to know what is expected of us, and we need to know the standards to which we are accountable. The Code does this, and it is worthy of study and reflection by every actuary.

Some of us forget that we signed a document stating we would abide by the Code. After observing my daughter, and serving on the ABCD, I think our profession would benefit if all new actuaries had to restate publicly (for example, at their first meeting as a credentialed actuary) their commitment to abide by the Code.

I have been privileged to be a member of a noble and rewarding profession. I am well into my retirement. Please continue to call the “balls and strikes” fairly, whichever discipline you work in, regardless of the pressure. Please continue to speak truth to power. Only then will our beloved profession survive and prosper.

GODFREY PERROTT, MAAA, FSA, is a member of the Actuarial Board for Counseling and Discipline.

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