Everyday Ethics for Financial Advisers

A Guide for the Ethical Professional

Simon Longstaff, Katherine Hunt, Carolyn Tate

• Publisher: The Ethics Centre
• Year: 2020
• ISBN:
  9780648724612
• Edition: 1
• Topic: Business
• Subtopic: Financial Services
• Index: Business

ETHICS IS AT THE CENTRE OF BEING HUMAN

Every day, and in every client interaction, financial advisers face ethical decisions. In whose best interests are you operating in? Are you recommending the best investment for your client? Do you know enough about your client’s situation to be giving this advice?

This practical guide for Australian financial advisers, offers ethical decision making frameworks and practice case studies based on the five values and 12 standards of the Financial Planners and Advisers Code of Ethics 2019.

Everyday Ethics for Financial Advisers is a handbook intended to be a long term companion as you develop your ethical muscle throughout your career as a financial adviser.

This essential text has been written for lecturers and students to fulfil the curriculum requirements for FASEA’s Ethics and Professionalism Bridging Course and FASEA’s National Financial Planning Curriculum.

PART ONE

FUNDAMENTAL CONCEPTS IN
EVERYDAY ETHICS
FOR FINANCIAL ADVISERS

CHAPTERS 1 – 2

1 WHAT IS ETHICS?

CONTENTS

Learning outcomes

Introduction

Ethics in everyday life

Ethics and morality

Ethics and the law

Ethics and uncertainty

The grey zone of ethical dilemmas

Virtue ethics

Deontology

Consequentialism

Utilitarianism

An ethics framework in practice

Ethics framework

Purpose, values and principles in practice

Values

Universal values

Schwartz’s values

Origins of values

Principles

The ‘sunlight test’

What distinguishes a principle from a value?

Purpose

Organisational purpose and its role in guiding decisions

Leadership and individual purpose

Using the language of purpose, values and principles

Conclusion

Chapter highlights

Reflection questions

Case studies

Learning outcomes

Upon completion of this chapter you will be able to:

1 demonstrate knowledge of how ethics is applied in everyday life, and the relationship between ethics, morality and the law

2 critically reflect on the different ethical philosophies of deontology, virtue ethics, utilitarianism and other forms of consequentialism as they apply to the financial advice profession, and

3 critically reflect on the ethics framework of purpose, values and principles and its application in the role of financial adviser.

Introduction

Every day, in life and at work, individuals are presented with ethical dilemmas that require them to make choices. ‘Ethics’ refers to the process of consciously applying values and principles that govern a person’s behaviour and the choices or decisions they make. These choices ultimately have an impact and consequences on a person’s family, community, co-workers, clients, the environment and of course, their own life. Every choice made affects some other stakeholder in some way. Life is not about avoiding ethical issues and dilemmas, as they are ever present. It is about navigating them.

Potter Stewart, a former Associate Justice of the Supreme Court of the United States, once said:

Ethics is knowing the difference between what you have a right to do and what is the right thing to do.¹

Many individuals live their lives within the narrow confines of what they feel they have a right to do, based on historical, cultural and societal parameters, and assumptions that have never been questioned or contested. Individuals also make decisions within the rights of the law, even though they, and many others, may well consider that decision to be substantively unjust or unethical. In both a personal and a professional sense, what is ‘legal’ is often not what is ‘right’ according to a person’s values or principles. In this way, the law often creates more of a minimum standard than serving as a guide to optimum behaviour.

There are many public examples, in the financial advice industry, of decisions that have been made within the bounds of the law, yet many would consider ‘unethical’. Ethics is the practice of behaving beyond the confines of the law. It urges us to do what is right.

The study of ethics is both deep and complex. There is always far more ‘grey’ than ‘black or white’ when it comes to ethics. Indeed, that is the nature of an ethical dilemma — that it pits ‘good’ vs ‘good’ and ‘right’ vs ‘right’. A strong ethical mind is one that is exercised each day and in every decision. Ethics becomes a practice, not just something that is brought out when individuals are morally challenged over an important decision. Ethical dilemmas can be as significant as choosing to support a friend who is dying and has chosen voluntary euthanasia when you value human life, to buying coffee in a disposable cup even with the knowledge that that cup will end up in landfill.

Ethics in everyday life

While ethics surrounds everyday life, there is often confusion regarding what ‘ethics’ is all about. Some people think of ethics as a lofty branch of philosophy, with mental images of philosophers with long, flowing beards contemplating life’s abstract questions.

In fact, people ask ethical questions whenever they ask the question: What should I do? It is this question that is at the heart of ethics. Socrates is credited with having asked the fundamental question of ethics: What ought one to do?² While the statement might strike our modern ears as awkward, it is important to note that Socrates’ question asks what ‘one’ ought to do, and not what ‘I’ ought to do. The ‘one’ in Socrates’ question refers to what any person should do, not simply the decision ‘I’ would make as a self-interested individual.

This question steers closer to the heart of what ethics is. Being ethical is an intrinsic part of what defines human beings. Human beings are rational, thinking, choosing creatures. Individuals have the capacity to make conscious choices. Despite this, we often choose as a matter of habit or in line with the views of the crowd. Ethics invites us to make conscious and conscientious ethical choices — informing our day-to-day interactions.

Should a friend be told a truth even though it will upset them? Must we buy organic free-range eggs even though they cost more than the alternatives? Is it selfish to spend money on an overseas trip when people are dying of starvation?

Ethics asks the questions: What is good? What is right? and also provides guidance to the question: What is a life worth living? Ethics involves reflection and self-awareness. People ‘do ethics’ every time they try to answer the question: What should I do?

Ethics does not discount emotional responses, but it does require individuals to be rational when weighing up a decision, rather than acting on instinct alone. Ethics asks individuals to reasonably consider their options: what they know, what they assume and what they believe, in order to choose a course of action most consistent with what they think is good and right. This is an active process.

Ethics ... is about struggling to develop a well-informed conscience. It’s about being true to the idea of who we are and what we stand for. It’s about having the courage to explore difficult questions. It’s about accepting the cost.

— Dr Simon Longstaff AO³

While ethics is a branch of philosophy concerned with what is right and wrong, it does not seek to produce a comprehensive list of rules to apply to all people at all times. Two people can think ‘ethically’ about a situation and come up with very different decisions about what they should do. This does not mean that ‘anything goes’. As noted above, ethics makes some minimal requirements: that each person thinks about what they do, that they have the honesty and courage to face the truth about the circumstances in which they decide — and not merely fit in with the crowd, that they take account of the facts, etc.

Ethics also looks beyond specific actions. Yes, individuals want to know how to act right now, but they also want to know how to structure their lives as a whole. For some philosophers, this involves questions about what it means to live a good life. For Aristotle, the ‘good life’ was one in which people achieved what the ancient Greeks called ‘eudemonia’, best translated as ‘flourishing’.⁴ For other philosophers, it involves a moral calculus of utility to maximise the greatest good for the greatest number, while for others it involves respecting the intrinsic dignity of all human beings and upholding the duty to universal reason as thinking, rational beings.

Ethics is not only for the ‘big issues’. Essentially, ethics involves:

▪ relationships

▪ struggling to develop a well-informed conscience

▪ being true to t...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgements
• About this text
• Part 1 — Fundamental concepts in Everyday Ethics for Financial Advisers
• Part 2 — The FASEA Code of Ethics and your professional environment
• Part 3 — Frameworks for applying the FASEA Code of Ethics
• Afterword