June Smith

When a financial planner knowingly and willingly rips off a client, provides deliberately misleading advice or promotes an inappropriate product, the question is often, “Why?”. A new report provides some of the answers.

It’s not enough to say only that the planner in question is a crook or a charlatan; there’s more to the issue than that. And for the first time, the reasons that planners make both ethical and unethical decisions has been examined in detail.

A new report released today, Ethics and Financial Advice: The Final Frontier is an examination of “the current ethical issues in the Australian financial advisory sector and the factors that influence ethical decision making within Australian financial services organisations”.

The report, by Dr June Smith though Victoria University, sought to improve the general understanding of “the factors that influence ethical decision making within financial services organisations”.

And it concludes that that there are both individual and “contextual” factors at play. The contextual factors – that is, the environment in which a planner works – have been found to have the greater influence.

In other words, if a financial services organisation does not effectively instill a culture of thinking and behaving ethically, a financial planner is more likely to behave unethically.

Some of the “individual” factors that influence behaviour and decision making include “the ethical reasoning ability of the individual decision maker, which in turn is influenced by the decision maker’s age, experience and whether they hold a professional designation”.

However, “the contextual factors are numerous and seem to have more influence on ethical conduct outcomes than individual factors”, the report says.

“These contextual factors include remuneration structures, the role played by the individual decision maker, the ethical climate and culture of the organisation and the presence of ethical leadership.”

A clear outcome of this finding is that “improvement in individual conduct and competency standards whilst necessary, may not achieve [the] objectives” of ensuring that high-quality financial advice becomes the norm, and financial planning achieves recognition as a true profession.

“It is suggested that regulatory responses may not always resolve these issues and that a more comprehensive solution may be required,” the report says.

It recommends that ethical guidelines be incorporated into organisational structures in the same was as corporate governance, risk management and compliance “as an alternative or complementary mechanism to the reliance on constant regulatory reform going forward”.

To download a full copy of the report, CLICK HERE.

17 comments on “Planners behaving badly – here’s why”
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    Wow Luke – what a tirade. If your friends work in the industry and you speak about them that way, I would hate to see how you treat your enemies.

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      Hi Caroline, I never said a bad thing about my mates. I said they work in the industry and I wouldn’t trust most of them. Maybe I didnt explain myself properly. From what we have discussed I would not trust most of them (most of them meaning other planners – not most of my mates) most doesn’t mean all planners either. Lastly, I keep my friends close and if I had any enemeies I would keep my enemies closer :)

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    Spot on Marcus – has anyone heard the saying -Self recommendation is no recommendation? i.e FPA

    I got friends that work in the fin services industry and man I would never trust most of them. Not because they are dodgy, it’s just that they don’t know what they are doing and it all starts from the education seed. They admit it themselves.

    How can you run a business when compliance takes up a third of your time, followed by a third for marketing & admin and then you are left with a third to look after your clients? Some have hundreds if not thousands on their books. Furthermore, claiming to be an expert at super, insurance, managed investments, direct investments and shares, estate planning, tax planning, budgeting, the list goes on and on. Of course quality of service is crap and I have never yet met a person to say I have become wealthy (or very wealthy) because of my financial planner/adviser.

    They are all influenced by the devils best friend – Money! Of course they will recommend products that benefit their pocket.

    Planners out there are saying what about the good stuff we do? I believe 95% of advisers are under dealerships that are aligned to some sort of financial/insurance provider. How can we call it unbiased advice when your approved products list has all your alliance partners products on their, most likely eliminates all your competitions products and a unwritten law to write products with whom your aligned with by giving you higher commissions on those products.

    What are the corporate watch dogs going to do with such operators? Are misleading, lying, and ripping off advisers going to be prosecuted? Locked up? Banned from being directors if they stuffed up under the corporations law? They should be looked at, why wouldn’t they be? I think the watch dogs will do nothing as it will back fire for all they stand for. The financial services industry is Legalised Crime. The whole system stinks. Get yourself a qualification from a RTO who is also only interested for your money hence the fee for service model in these private colleges, 3-4 days later you walk away with a qualification to be a planner/adviser. WOW

    Never trust anyone else with your finances, take your own control, educate yourself and you can do most of the stuff planners claim to do better and cheaper. The internet has all the answers and it will only cost you time not money.

    All the best looking forward to what is done to clean this mess up.

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      Interesting outburst Luke Mason. May I ask what career are you in – sounds like you sell day trading education. In terms of planner education, which I agree more work is required by the Industry. So bringing this back to the facts of the thesis – most of the issues involved Accountants and stockbrokers and high risk venture capital schemes. Are you saying they need more education – I have several accountants as friends and they are the smartest people they know. Also Storm prided itself on having planners who gaduated with the Masters of Applied Finance and several CFPs (these qualifications take more than 3-4 days to complete).

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      Hi Mal,

      I’m retired and do community and charity work now and occassional consulting work for friends businesses.

      I have worked in both (but not only) the mortgage broking and financial planning industries. Furthermore, I then went into owning private colleges providing nationally recognised courses for the FP and Mortgage Broking Industries. I just say it as is from experience. I had enough of the crap and moved on. I just wrote what a lot of people want to write, I’m not going to pussy foot around trying to keep people happy, there are issues and unless people speak out nothing will be done. I believe the industry is getting better but still a lot of work to be done.

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      Hi Luke, thanks for the update. Would be interested in your thoughts on my comments about the Accountants who promoted the failed schemes highlighted in the thesis. Check the ASIC website for details.

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    Having read the summary report Dr Smith’s thesis, the following conclusions can be reached.
    1) Westpoint, ACR & Fincorp – are failed Property Development shemes. ASIC is suing KPMG (Auditors) for $200 million over Westpoint. One adviser firm named by ASIC has close links to accountancy firms. – conclusion avoid Property Development schemes in particular those largely promoted by accountants, and unlicenced persons who ASIC still refer to as financial Advisers (page 21 4th paragraph).
    (2)Timbercorp & Great Southern – same conclusion as above – largely promoted by accountants.
    (3) Basic Capital – same conclusion – largely promoted by accountancy firms.
    What about OPES PRIME – stockbrokers – conclusion – avoid stockbrokers.
    (4) Storm Financial – boutique self owned Licensee with directors culture. – avoid boutique Licensees.
    Final Conclusion – only deal with any Financial Planners who are associated with Banks of large financial institutions. (you will not find Property Development Schemes or Agri MISs on their recommended list).

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    That ridiculous outfit the FPA are to blame and needs to be dismantled. Imagine having a CFP course designed for the US market which, is in crisis and exceedingly poor financial and fiscal health? The program is totally incompatible with the Australian financial services industry. Imagine spending so much money and time studying to attain the desired result only to find that, unlike a degree you cannot use the designation anywhere, at any time? CFP is not worth the paper it is written on and is a fraud, pretending to show consumers that this is a profession, not just an industry, but fails to deliver on that promise. Disband the FPA, save your money and your reputation!

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    John Moreton

    This is the sort of article you’d expect to see from Simon Hoyle. Wouldn’t it be excellent if Simon was able to write something that recognises the good work that financial planners do – and presenting some balance. But, we just get more of the same biased and one-eyed reporting.

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