Financial planners spend a lot of time thinking and talking about the psychology of money and applying behavioural finance principles to engage clients and encourage them to make better decisions. Sometimes, saving people from their own worst instincts, including over-confidence, is one of the most valuable aspects of an adviser’s services.

But forget consumers and clients for a moment. The psychology of advisers themselves, the people who manage advice networks and those who manufacture and distribute financial products, has been picked over during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry over the last few months, and it hasn’t been pretty.

A quote springs to mind from the 1941 Orson Welles movie Citizen Kane, when Mr Bernstein, Kane’s friend and employee, says: “It’s no trick to make a lot of money, if all you want is to make a lot of money.”

A number of tricks have been examined by the Hayne royal commission, including charging fees to dead people, charging fees and providing no service, and misleading the regulator. We really should expect and demand better from the people who lead our largest and most important financial institutions.

In some respects, we shouldn’t be surprised by what we’ve seen. People can do unexpected things if they start to believe that what passes for success is due to their own skills and expertise, and if they find themselves working in an environment where there aren’t the right sorts of checks and balances on how decisions are made.


Some of the success financial institutions claim has little to do with them at all. For example, a government guarantee on bank deposits helped maintain confidence in the banking industry during the global financial crisis; and the growth (arguably the existence) of the superannuation industry is underpinned by the Superannuation Guarantee – something that had very little to do with any of the institutions directly but which sent $15.3 billion in contributions flowing into super funds in the March quarter of 2018 alone.

An integral part of human psychology is to take personal credit for success and to blame external factors, such as luck or other people, for failure.

Paul Piff is an assistant professor in the Department of Psychology and Social Behaviour at the University of California, Irvine. In 2012, he conducted an experiment involving the board game Monopoly. A two-player game was rigged to favour one player, according to the toss of a coin. This “richer” player started with twice as much money as the other, they got to roll the dice twice each turn, and collected twice as much each time they passed “Go”. (And in a lovely little detail, Piff assigned the richer player the Rolls-Royce
game piece and the other player the old shoe.)

Before long, the richer player was moving their piece around the board more loudly and aggressively than the other player, hogging the pretzels left in a bowl on the table and, unsurprisingly, won the game. But when they were asked afterwards why they thought they’d won, they attributed victory to superior skill and experience. In repeated experiments, not one of the winners attributed success to winning the coin toss – which was, of course, pure dumb luck.

It’s easy to see how an individual who attributes success to the wrong factors might start to think they’re better at what they do than they actually are; and as a consequence, they might start to believe their decisions should not be questioned. But even if they were that good, there are other factors that influence how institutions behave and why they often make decisions that, in hindsight, seem inexplicable.


In December 2010, June Smith (now lead ombudsman, investments and advice, at the Financial Ombudsman Service), published a paper, Ethics and Financial Advice: the final frontier, in which she concluded that ethical decision-making within financial institutions is influenced by both individual and contextual factors.

Individual factors include ethical reasoning ability, age, experience and whether or not a person holds a professional designation. Contextual factors – essentially, the organisation the individual works in – include remuneration structures, the position and role of the individual decision-maker, the ethical climate and culture of the organisation, and the presence (or otherwise) of ethical leadership.

“The contextual factors are numerous and seem to have more influence on ethical conduct outcomes than individual factors,” the paper stated.

In other words, the culture of an organisation tends to trump the ethical standards and behaviours of the individuals who work in it. But the culture of an organisation comes from somewhere. In most cases, it comes from the top; and if the people at the top are inflated by perceptions of their own success and infallibility, then an organisation might start making some troubling and strange decisions. And if those ethics within the organisation override the ethics of the individuals working in it, actions might not be adequately checked.


Ethics is one of those words that means different things to different people. Sometimes the definitions of ethics and morals are intertwined, confusing the issue further. The Ethics Centre says ethics involves asking one simple question: “What ought I to do?”

The Ethics Centre states that there are simple tests that can be applied to any decision before it’s made. It asks individuals to consider whether they would be “happy for this decision to be headlining the news tomorrow”. That’s worth reflecting on, now that the results of some decisions have very much been in the news, and that has had an impact on reputations, balance sheets, careers and health.

It asks individuals to consider whether there’s a “universal rule” that applies in a particular situation – such as never undermining the equality and dignity of all people – and to ask if a proposed course of action would produce a “good” result. We might also ask for whom, and at the expense of whom?

It urges people to consider what would happen if everybody took the same proposed course of action under the same circumstances, what the proposed action would do to the individual’s character or the character of their organisation, and whether the proposed course of action is consistent with the individual’s values and principles.

While they’re superficially simple questions, in the heat of the moment – and in a culture driven by powerful personalities that tend towards other outcomes – it can be exceptionally difficult for an individual to stand up and speak out.

That’s not only a failure of individual nerve and responsibility (and we’ve discussed before what might have transpired at the royal commission had financial planning already been a profession), but also a failure of leadership to create an environment where alternative views and opinions can be expressed and assessed rationally, without fear of adverse consequences for the individual.

It seems that more people in our biggest financial institutions could usefully run through the Ethics Centre’s short checklist and ask themselves “what ought I to do” when faced with making decisions that clearly affect the wealth and well-being of customers and clients.

Simon Hoyle is head of market insight for CoreData Research.
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