FINS3637: Wealth Management Advice & Ethics
Wealth Management Advice & Ethics
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FINS3637: Wealth Management Advice & Ethics
Dealing with Ethical Dilemma
Common Issues to consider
• Complexity
• Prepare for difficult decisions to be made
• Ethical thinking
• Beware of biases
• Having a process → EDMF
• Consistency of outcomes
• Act and reflect
• Ongoing learning → Not a set and forget
Ethical Theory
Financial Advisers Code of Ethics
Code of Ethics
Ethical Theory
Introduction
The Financial Planners and Advisers Code of Ethics (“the
Code”) applies to all registered financial advisers in Australia.
The Code is a legislative instrument and is enforceable by law.
A legislated code of ethics is the first of its kind in Australia
and internationally.
Most codes of ethics are written and enforced by professional
industry bodies, but this code is an exception.
12 ethical standards form the Code and the associated
explanatory statement and guidelines.
Introduction
Ethical Theory
Background
The Code was developed to restore trust in Australia’s
financial system and to build a stronger economy.
The Code was formed in response to financial providers and
services collapses in Australia during the global financial
crisis, and the later public scandals of major banks in Australia
involving financial advice.
Background
Ethical Theory
The Code was introduced to the Corporations Act 2001 (Cth) in March 2017
through the Corporations Amendment (Professional Standards of Financial
Advisers) Act 2017 (Cth) to raise the education, training, and ethical standards of
financial advisers providing personal advice to retail clients on financial products.
The Code applies to all financial advisers on the FAR and all provisional advisers.
Existing and new financial advisers must complete a course on ethics and
professionalism, which covers content on the Code of Ethics.
Background
Ethical Theory
The Financial Adviser Standards and Ethics Authority
The Financial Adviser Standards and Ethics Authority (FASEA) was
declared as the standards body under s 921U of the Corporations
Act 2001 (Cth) and given responsibility for making a code of ethics.
FASEA made the Code of Ethics by legislative instrument to
commence from 1 January 2020.
FASEA is a Commonwealth company limited by guarantee.
It was perceived that a Commonwealth body would be more likely to
restore confidence in financial services than an industry body.
Although FASEA is a Commonwealth company, its standard setting
function is independent of government.
The Financial Adviser Standards and Ethics Authority (FASEA)
Ethical Theory
FASEA Funding Model
FASEA was to be funded by industry.
FASEA was initially funded by a levy imposed on the major
banks.
Industry funding of $3.9 million annually was to be provided,
based on adviser numbers.
Funding covers the costs of implementing the professional
standards in the Corporations Act 2001 (Cth).
The Financial Adviser Standards and Ethics Authority (FASEA)
Ethical Theory
Funding agreement expired on 30 June 2021.
The government is now disbanding FASEA and transferring its powers into
Treasury and ASIC’s Financial Services and Credit Panel from 1 January 2022.
A new funding model is yet to be confirmed.
Ethical Theory
Main themes of the Code
Principles-based model that promotes client best interests and
engages each individual financial adviser with their duties to
both clients and broader society.
The Code of Ethics focuses on five main themes:
1. Acting in the best interests of clients;
2. Avoiding all conflicts of interest;
3. Obtaining informed consent of clients to provide advice, and
pay associated fees;
4. Ensuring clients understand the advice they receive; and
5. Maintaining educational requirements to ensure a high level
of knowledge and skills.
What is in the Financial Planners and Advisers Code of Ethics?
Ethical Theory
Overarching domains
The 12 standards that form the Code of Ethics are further split
into four overarching domains containing three standards
each, as follows:
1. Ethical behaviour – Standards 1, 2 and 3;
2. Client care – Standards 4, 5 and 6;
3. Quality process – Standards 7, 8 and 9; and
4. Professional commitment – Standards 10, 11 and 12.
What is in the Financial Planners and Advisers Code of Ethics?
Ethical Theory
Ethical behaviour
There is a reciprocal relationship between ethical behaviour
and the value of trust, in that ethical behaviour influences
perceptions of trust and trust influences perceptions of ethical
behaviour.
The 12 Standards of the Code of Ethics – Ethical Behaviour
Currently
under
review
Ethical Theory
Client Care
Relates to an adviser knowing their individual clients’
circumstances and ensuring that all recommendations are
appropriate to these circumstances and in the best interests of
their clients.
Values of honesty and trustworthiness underpin these
standards & values of competence, diligence, and fairness
apply specifically.
The 12 Standards of the Code of Ethics – Client Care
Ethical Theory
The 12 Standards of the Code of Ethics – Client Care
Ethical Theory
Quality Process
Adviser must take the necessary steps to ensure the process of delivering advice is
in accordance with the five values of the Code.
An adviser may utilise specific systems and procedures to ensure ethical behaviour
is demonstrated in the advice process, e.g. file notes, checklists, agreements from
clients, video or audio recordings of meetings.
The 12 Standards of the Code of Ethics – Quality Process
Ethical Theory
Standard 7
The client must give free, prior and informed consent to all benefits you and your principal will
receive in connection with acting for the client, including any fees for services that may be
charged. If required in the case of an existing client, the consent should be obtained as
soon as practicable after this Code commences.
Except where expressly permitted by the Corporations Act 2001, you may not receive any
benefits, in connection with acting for a client, that derive from a third party other than your
principal.
You must satisfy yourself that any fees and charges that the client must pay to you or your
principal, and any benefits that you or your principal receive, in connection with acting for the
client are fair and reasonable and represent value for money for the client.
Standard 8
You must ensure that your records of clients, including former clients, are kept in a form that
is complete and accurate.
The 12 Standards of the Code of Ethics – Quality Process
Ethical Theory
Professional Commitment
These standards refer to developing, maintaining, and
applying a high level of knowledge and skills relevant to the
provision of financial advice; cooperating with any legal
investigations into any potential breaches of the Code; and
upholding the ethical values and standards outlined in the
Code for the protection of broader society.
The 12 Standards of the Code of Ethics – Professional Commitment
Ethical Theory
The 12 Standards of the Code of Ethics – Professional Commitment
Ethical Theory
Values
The key principles underlying the Code are supported by five
values espoused in the Code.
A relevant provider must always act to realise and promote the
following values:
Values Espoused by the Code
Trustworthiness Competence Honesty
Fairness Diligence
Ethical Theory
Trustworthiness
“Trust is the expectation that the adviser (‘trustee’) can be
relied on to act honestly, competently and in the best interests
of the client (‘trustor’) and thereby reduce the trustor’s risks of
loss.” (Cull, 2015).
The definition of trust includes the values of competence and
honesty — both of which are included separately in the Code
of Ethics.
Values Espoused by the Code – Trustworthiness
Ethical Theory
Competence
Competence, as indicated by qualifications, behavioural skills,
and technical skills, is vital in financial planning.
The ‘Birkett report’ (1996) outlines 20 behavioural and seven
technical competencies required of financial planners.
If unable to meet the competency required by a client’s
specific needs and circumstances, an adviser should not
accept the engagement.
Values Espoused by the Code – Competence
Ethical Theory
Involves a duty to keep up to date with developments in
financial planning and undertake relevant professional
development.
Values Espoused by the Code – Competence
Ethical Theory
Honesty
Honesty is a value closely linked to trustworthiness.
Requires advisers to conduct themselves with integrity in their
professional dealings; this could be with clients, peers,
regulators, licensees, colleagues, supervisors, managers.
Keeping client documentation and other information
confidential is also an aspect of honesty.
Values Espoused by the Code – Honesty
Acting to demonstrate, realise and promote the value of honesty requires that you
conduct yourself with complete integrity in all your professional dealings with your
clients and with all others that you engage with in a professional setting. It requires
transparency, frankness and fairness to each of your clients, even where this may
cause you personal detriment. (FASEA, Code of Ethics, 2021)
Ethical Theory
Fairness
The word ‘fair’ is defined in the Oxford Dictionary as ‘1. treating
people equally; 2. just or appropriate in the circumstances’.
In a financial advising context, fairness involves an objective
assessment of what advisers are able to offer to their clients.
Closely related to the values of ‘competence’ and ‘honesty’.
To demonstrate the value of ‘fairness’, an adviser first needs to
understand the needs of their client - through meetings and
thoroughly investigating client goals and circumstances,
checking documentation and making relevant enquiries.