In the past six months a plethora of articles and news releases have focused on the need to raise the level of education within the financial services industry, to solve the apparent ethics problem within. It is hoped that Australian financial advisers will become more aware of their ethical responsibilities.
But is higher education actually a panacea, or just a reaction by the industry to show it’s doing something? Can an inherently dishonest person be put right by education alone?
Is education actually effective, or is it being proposed to satisfy the public demand?
And is a solution that places more layers of education on financial planners actually going to address the issue, or just increase the cost of advice to a client?
It is argued that the only way to convince the general public that the financial advice industry is professional is to raise the educational level of entry. This comment is agreed upon and to be applauded. However, having researched a number of the pathways to entry, the subject of ethics is barely covered, if at all. It seems to be an area that regulators feel should be included, but not in any great detail.
Moral judgment
Moral principles are firmly ingrained by life experience. What distinguishes ethical from unethical behaviour may be decided on during early childhood and carried through to adulthood. So it’s fair to ask whether this sort of thing can be taught or even corrected. If someone has experienced a disruptive upbringing, then their sense of moral judgment may be impaired. And the effect of their experiences will carry forward in life, no matter what their education level, and may have an adverse effect on their decision-making abilities.
The factors that define ethical behaviours are diverse, but all elements unite when a person makes a final decision on how to act. A rudimentary question that can be asked by advisers – and the standard by which human action can be judged – is: “Is this action right or wrong?” This query forms the basis of moral duty.
Therefore, raising the level of education of advisers will not necessarily result in a more ethical individual. In fact, a number of studies have concluded that the level of education held by the individual did not influence principled reasoning. It is an individual’s cognitive moral reasoning level that is a significant factor affecting the ability of advisers to exercise judgment in the resolution of ethical dilemmas and to act ethically.
How many times have we seen corrupt actions by highly educated people – not only advisers, but lawyers, doctors, and accountants? What action is being taken in this industry to correct this? In addition, what is the public reaction to, for example, a doctor rorting Medicare or a lawyer double-billing or padding hours? The reaction is probably not as extreme as we see in the financial services industry. Irrespective of their educational background, the plain fact is that some people are just dishonest.
A person may not be made honest by education alone; it is an ongoing development. However, ethics can be taught, and it must be a process that occurs in the financial services industry sooner rather than later.
What is the answer?
One recommendation would be for all continuing professional development (CPD) programs to include compulsory training on ethics and ethical decision-making. Increased competency standards will assist in improving conduct and qualification standards – and will help to convince the general public that the financial advice industry is professional.
Of course other remedial actions – such as having the correct controls, policies and procedures in place – should really be used to identify and report ethics violations. However, this is something that must come from within the industry. When financial advice is provided, advisers should always be asking: “Is this in the best interests of my client?” and “Is this right or wrong?”
Answering those two simple questions may be the start of a pathway for ethical education moving forward. This is a capstone of any advice model. Unethical and dishonest behaviour is rife within all realms of business – not just the financial planning industry. However, the problem can be corrected by a form of disciplined education.
Basic courses on ethics – and more particularly, the role of financial planning in society – should be incorporated into not only financial services broadly, but into multiple disciplines and curriculums.
