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.
Morality & ethical standards are complex issues. There is an infinite number of possibilities that are viewed as the “idea position” to be when fitting into the spectrum of morality.
One thing I know for sure is that moral standards & ethical values are acquired by most adults well before they contemplate becoming a Financial Planner and once set they rarely change. They are mostly a product of upbringing…for those who struggle in this area consumer protection can only be improved through regulation and an industry structure that avoids obvious conflicts of interest…
THE FINAL FRONTIER – I’m intrigued – is this to get the attention of us TREKKY baby boomers or the Gen Ys IRON MAIDEN fans, Dr Richard Kent’s Life after Death followers or something else?
Enough I say of the post mortems.
Time for the next edition BEYOND THE FINAL FRONTIER the brave new world where no person has gone before.
Frankly I am tired and bored with being listed among the nasties of the business world. When I think of all the Vapourware we were sold regarding IT and the amazing claims that were made the very few financial advisers doing their job badly or who are bullied into using the dealer’s product push of the month do not seem to be such a force for evil in the world.
Most of us provide incredible amounts of pro bono advice to people too silly and greedy to be worth trying to help improve their lot.
But what does give me heart was the client of 24 years who rang and left a message wishing us a happy holiday on our well deserved break and thanking us profusely for the peace of mind they have enjoyed for the last 24 years.
By the way that client has been happy to pay what we have been told is outrageous fees to enjoy their peace of mind
A pity that the regulators will either not read or heed this report. Instead, it is easier to slap on more regulation to appease the public and / or media, thereby penalising the 99.99% of advisers who are ethical.
Dr. Smith is correct that the institution has more impact than the individual. I know some very competent and ethical planners, where their dealer group (large banks) has constantly put huge pressure on the planners to meet sales figures or lose their job.
When it comes down to feeding your family and keeping your home, verses doing what you know to be right, the family will win nearly every time.
It is unfortunate that these dealer groups have such a hold over the employees lives and ethics, until they can find a more suitable employer.
I agree. Regulatory solutions are inlikely to provide us with a silver bullet. On the contrary it might stifle the financial planning industry.
Until and unless financial planners put the clients’ well being first and commit themselves to high ethical standards extra regualtion will only add another layer of red tape.
In my view financial planners are doing life coaching. They should consider Total Wealth (www.totalwealthplan.com) of clients.
Dr Shnatha P Yahanpath
Wow.Now can the good doctor do a similar report on doctors,solicitors,accountants,vets,dentists,physios,chiropractors,IT consultants etc.do you want me to continue or do you get the idea.There is good and bad in every industry and all the reports won’t change that.
Like so much that is blindingly obvious, in this day and age, we clearly need a report to confirm the theory of that which we are unwilling to confront in practice – or confirm without a piece of paper signed by someone else.
Financial planning emerged from a heritage and culture of selling what was good for the sales person and not what was necessarily good for the client, or customer.
Such a structure provides a welcome trough for many snouts and can only be changed by blowing it up and starting again with education, rigour, regulation and vigilant policing.
Or if wiping the slate clean and starting again is not an alternative, the industry should actively pursue a parallel licenced professional planner education programme predicated on a well-planned non-commission structure and based on advice across what is best for the customer not the best of what is on offer – the true interpretation of an honest broker and trusted advisor.
With that in place and generational change a terminal reality for the dinosaurs, a realistic evolvement of best practice should take place.
There will always be opportunists, rogues and charlatans but then with a sound structure as an alternative norm, we can return to a buyer beware position and put some of the responsibility back on the belief in a good education and customer’s common sense.