What is a consequence of unethical incentives in finance?

The consequence of unethical incentives in finance is that they can lead to the encouragement of harmful professional behavior. When financial professionals are driven by unethical incentives, such as excessive bonuses tied to short-term performance metrics, they may engage in practices that prioritize their personal gain over the best interests of their clients. This can manifest in misleading clients about the risks and returns of financial products, pushing products that are not suitable for clients, or even engaging in fraudulent activities. Such behaviors not only compromise the integrity of financial institutions but can also harm clients, damage the reputation of the financial industry, and erode public trust in financial markets.

The other options suggest positive outcomes that are typically not associated with unethical incentives. For example, unethical behavior does not enhance client trust or improve financial literacy; rather, it undermines trust and potentially leads to greater misconceptions and knowledge gaps among clients. Similarly, unethical incentives are unlikely to contribute to increased client retention, as clients who feel misled or harmed are more likely to take their business elsewhere.