The former chief executive of the Financial Adviser Standards and Ethics Authority, Deen Sanders, has spoken out about a failure to uphold ethical principles in the financial services industry.

Presenting on the ‘positive’ side of a debate over the proposition that “honesty, fairness and justice are incompatible with financial services”, Sanders said this was “absolutely” the case.

“Structurally, [financial services] rewards the wrong things in terms of honesty,” Sanders argued. “Legally, it produces the wrong outcomes in terms of justice, and personally, for the community, it benefits the wrong participants.”

Sanders was speaking at the 2018 Investment Management Research Conference, which is presented by the Portfolio Construction Forum and fronted by Graham Rich.

Charged with making the case that ethical principles currently don’t work, he picked apart the efficacy of ethics in financial services, starting with honesty.

“If we think about the concept of honesty, it’s built on transparency, openness and truthful promises. In contrast, the very structure of financial services is measured on arguments about special knowledge and arbitraging material,” Sanders said. “It’s a sector that magnifies difference and commercialises asymmetries of knowledge.”

Sanders made light of his own professional allegiances, saying that for “pollyanna ideologues” like him, the issue is “consumer protection”.

Regarding fairness and transparency, Sanders again blamed failure on professionals, this time using the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to make the point.

“There can be no reasonable argument for genuine transparency and openness in environments that rely on experts,” he argued. “The royal commission has made the case very starkly.”

In considering justice, Sanders said it should be about the appropriate punishment for someone who has done something wrong. While people are the ones committing crimes, he argued, the current system allows them to hide behind businesses. Again, the royal commission provided ample fodder for his position.

“We can compare notes on a dozen people who would be spending time in jail for their corporate misdeeds, but none of them are on the stands,” Sanders lamented. “And they never will be, because the inhuman proxy of a corporation obscures access to real justice.

“Companies might support a culture, but individuals are the architects and the agents of behaviour. It’s the individuals that justice must find if there’s to be any compatibility [of ethics] with financial services.”

Despite winning the oxford-style debate, Sanders affirmed in a following Q and A session that all of these issues were fixable, but it does require “a re-imagining of the current legal and regulatory framework”.

“Industry is willing and I think it’s going to be a very exciting time ahead,” he added.

Sanders resigned as chief executive of FASEA in April, handing over the interim reins to Griffith University’s Mark Brimble, who was replaced by current head Stephen Glenfield on September 1.

Since leaving FASEA, Sanders has been working for Deloitte as a professionalism leader in governance, regulation and conduct, and speaking at various financial services events, such as the Financial Services Council’s 2018 summit in July.

FASEA released a draft code of ethics for advisers in March, with a consultation period running through to June. In a subsequent consultation paper for the imminent financial adviser examination, the FASEA code of ethics was one of the five curriculum domains. Applied ethical and professional reasoning and communication was another domain.

FASEA is expected to pass on its interim recommendations around the end of September but has announced no official schedule.

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Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.