Morals Beat the Market

What does integrity have to do with superior portfolio performance? A lot, say researchers in a study released in May, which found that advisors who demonstrate high levels of “moral and emotional competency” outperformed the S&P 500 by 73 percent over the four-year period between 2001 to 2004. Yes, we know, data mining is a tricky business, and can yield almost any kind of result. Still, the findings are interesting. Researchers found integrity (defined as acting in a manner that is consistent with what one says is important, communicating intentions, ideas and feelings in an open and direct manner and welcoming openness and honesty, even in difficult situations) had the strongest impact on positive client returns.

The study was conducted by the Consortium for Research on Emotional Intelligence with guidance from consortium member the Lennick Aberman Group, a performance enhancement consulting firm, and was commissioned by Ameriprise Financial Services in Minneapolis, MN. In all, a sample of 22 advisors (who managed at least 30 baby-boomer portfolios worth between $100,000 and $500,000) were surveyed in order to find new ways to increase client returns and improve advisor performance. Yes, that's a pretty small sample size, but the researchers were very thorough: They individually interviewed advisors and analytically coded transcripts for specific manifestations of integrity; and each interview yielded an average of 70 codable incidents that were evidence of integrity.