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.
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