Horse racing in Victoria and travel agents across the country have more in common with financial planning than might be immediately obvious. Central to the similarities is a code of professional conduct, and a robust mechanism to enforce that code.
But they also share the skills and expertise of Dr June Smith, who last week was appointed as of chair of the Financial Planning Association (FPA) Conduct Review Commission (CRC).
Smith currently works with the Racing Victoria Racing Appeals and disciplinary Board; in the customer-owned banking, insurance and general insurance broking sectors; and is chair of a new body that monitors compliance with the Australian Travel Agents Scheme.
Smith is also the author of a seminal paper – the subject of her PhD – on how individuals within financial institutions make ethical or unethical decisions, and the respective roles played by an individual’s own moral judgements and the culture of the organisation in which they work.
But most relevantly for financial planners, Smith chairs the body they will be required to front if they ever face accusations of a serious breach of the FPA’s Code of Professional Practice. The CRC mirrors bodies in other professions that monitor and remediate compliance with those professions’ codes.
Independent body
“It’s an important part of any professional framework that [there be accountability], and that that accountability be undertaken by an independent body, which is what the Conduct Review Commission is,” Smith says.
The CRC has the power to bring a range of sanctions against FPA members, including fines, requiring additional supervision or further professional development, or suspending or expelling a member from the profession.
But the CRC won’t only be pulling out the big stick. Smith says the commission also wants to provide insights and to share experience about professional obligations and conduct.
Smith says the mere existence of the CRC may act as a deterrent against unethical behaviour or conscious and egregious breaches of the code, but it’s there to do more than that.
“A disciplinary body also has another role, and that is to assist members of a profession to understand how they can engage with their own professional obligations, and where those boundaries are,” she says.
“And in that sense what you really want is for a member to engage in, understand and remediate their own conduct and behaviour going forward as well.
“So yes, there is a deterrent factor, a deterrent on the individual member and a general deterrent for the rest of the profession; but I like to think there is a positive message as well, and that is, contribution to the body of knowledge about where the boundaries are between ethical and unethical conduct.”
Culture and values
Smith’s PhD work found that the culture and values of an organisation tend to trump the moral values of the individuals it employs. Put simplistically, a “good” person in a “bad” place will almost inevitably face a personal moral dilemma. And conversely, great values, culture, role models and leadership can overcome an individual’s tendency to act or behave unethically.
“Once you understand that there are individual factors that will affect the way in which a person or a financial planner will make decisions, you can then control for those factors,” Smith says.
“Next is to understand that even if you put a ‘good’ person in an organisation, the culture and climate within that organisation – how a member of a profession is paid, whether or not there is ethical leadership in that organisation, and whether or not there are role models who can assist the individual to understand the boundaries around conduct and behaviour that’s expected – are incredibly important.”
Smith says it is also important to understand that not everyone actually has the ability to understand and resolve an ethical dilemma – and that is not a comment or a judgement on an individual’s oral values or compass.
Actually a skill
“The ability to reason through and apply and exercise professional judgement is actually a skill,” she says.
“A financial planner may have moral values and a moral compass, but they also need the ability to independently assess and apply professional judgement to a particular set of circumstances.
“Cognitive ethical reasoning can actually be measured, which is what the PhD did. And you can train adviser to understand how to engage in ethical reasoning and apply professional judgement. That’s different to moral values that the individual might already possess.”
Smith says that in a financial planning context the Australian financial service licensee (AFSL) has a major role to play.
“It’s actually easier for a licensee to influence the culture of their organisation and to put in place policies, procedures and values within that organisation that will assist them to control and ensure consistency of conduct and behaviour than it is to control the individual values and ethical reasoning levels of each individual within that organisation,” she says.
“Remuneration structures, ethical leadership and role models, and the culture within a financial services organisation are actually far more important in determining whether or not an individual will make an ethical or unethical decision than their moral compass.”
‘My licensee made me do it’
But saying “my licensee made me do it” not an excuse for an individual planner who breaches the professional obligations that they knowingly and willingly sign up to.
Smith says that any member of a profession understands that they have professional obligations that they have signed up to and agree to comply with, so the CRC will look first at, simply, whether or not the financial planner has actually complied.
“One of the roles of the commission is, as a disciplinary body, to look at the individual accountability of each member, and how other rules of professional conduct apply in the circumstances, and then share insight and experience about how to resolve any dilemma that might arise where there may be a conflict of either interest or duty, between the obligations of the financial planner in this instance – the member of the FPA – and the organisation’s values, rules and policies on the other hand.
“The context within which the behaviour sits and the advice is given are obviously important considerations for the Commission, but ultimately we’re looking at the individual accountability of the member of the profession.”
