Ethics and Professionalism in Financial Advice

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Topic 1: Introduction to ethics, including individual cognitive bias and sources of judgment and decision bias
Ethics and Professionalism in Financial Advice | FPC002B_T1_v2 © Kaplan Higher Education

Ethics and Professionalism in Financial Advice

Contents
Overview…………………………………………………………………………………………………………………….. 1.1
Topic learning outcomes …………………………………………………………………………………………………………. 1.1
1 The ethics of decision making ……………………………………………………………………………….. 1.2
1.1 What is ‘ethics’?………………………………………………………………………………………………………….. 1.2
1.2 Hypotheticals ……………………………………………………………………………………………………………… 1.2
2 Ethical theories ………………………………………………………………………………………………….. 1.4
2.1 Virtue ethics ……………………………………………………………………………………………………………….. 1.4
2.2 Deontological theory……………………………………………………………………………………………………. 1.4
2.3 Teleological theory………………………………………………………………………………………………………. 1.5
3 Barriers to ethical decision making ………………………………………………………………………… 1.7
3.1 Partisanship………………………………………………………………………………………………………………… 1.7
3.2 Rationalisation ……………………………………………………………………………………………………………. 1.9
3.3 Implicit bias/unconscious bias …………………………………………………………………………………….. 1.11
3.4 Ethical blindness………………………………………………………………………………………………………… 1.13
3.5 Ethical fading…………………………………………………………………………………………………………….. 1.14
3.6 Ethical scripts ……………………………………………………………………………………………………………. 1.15
4 Ethical frameworks……………………………………………………………………………………………..1.16
4.1 The consequentialist framework …………………………………………………………………………………. 1.16
4.2 The duty framework…………………………………………………………………………………………………… 1.16
4.3 The virtue framework ………………………………………………………………………………………………… 1.17
Summary…………………………………………………………………………………………………………………….1.18
References ………………………………………………………………………………………………………………….1.19
1.1
Ethics and Professionalism in Financial Advice | FPC002B_T1_v2 © Kaplan Higher Education
‘Nothing is more difficult, and therefore more precious, than to be able to decide.’
(Napoleon Bonaparte, Maxims, 1804)
Overview
The first two topics in this subject provide students with foundation knowledge in ethics and
professionalism respectively, essential to understanding and examining their obligations as
financial advisers under the newly created Financial Adviser Standards and Ethics Authority Ltd
(FASEA) Code of Ethics (which are addressed in Topic 3).
For centuries, scholars, philosophers and professionals have struggled with the concept of ethics.
In attempting to reach a simple definition, general agreement now seems to have been reached that
‘ethics’ falls within the philosophical study of morality. For the purposes of this topic, we will look at
two approaches to understanding ethics: goodness (what ends we ought to pursue) and right action
(the principles of right and wrong).
This topic introduces the concept of ‘ethics’ and its application to financial advisers. We will explore
several schools of thought on how best to conceptualise and understand ‘ethics’, as well as the many
barriers that may exist in preventing people from making ethical decisions. We will do so in the
context of the role of a financial adviser.
We will also look at how financial advisers can apply ethical concepts to their decision making
by unpacking the tension between the rules that apply to them and their own personal values.
This tension can be described as the interface between role morality (the rules, legislation and
employment requirements that impact on advisers) and ordinary morality (the values, beliefs and
norms held by the adviser as a member of the general community).
In order to explore such conduct, it is first necessary to understand the differing schools of thought
about how one should view the impact or outcome of ethical decision making.

This topic specifically addresses the following subject learning outcomes:
1. Explain the role of ethical frameworks and professional standards within the financial planning
profession.
2. Assess the impacts of cognitive, judgment and decision biases on financial advisers and their
clients.

Topic learning outcomes
On completing this topic, students should be able to:
• explain the concept of ethics and the role of ethical frameworks within the financial planning
profession
• analyse barriers to ethical decision making
• gauge the implications of certain types of biases upon financial advisers and their clients.
1.2
Ethics and Professionalism in Financial Advice | FPC002B_T1_v2 © Kaplan Higher Education
1 The ethics of decision making
1.1 What is ‘ethics’?
It is difficult to ascribe a single definition to the word ‘ethics’ because ethics means many
different things to different people. At its most basic, ‘ethics’ is, according to the Oxford Dictionary
‘moral principles that govern a person’s behaviour or the conducting of an activity’
or ’the moral correctness of specified conduct’. Ethics is, therefore, about deciding between
good and bad, or right and wrong.
Ethics falls within the school of moral philosophy. According to Thomas Hobbes, ‘moral philosophy
is nothing else but the science of what is good and evil in the conversation and society of mankind’.
(Hobbes 1909–14 [par. 40]).
We all like to think of ourselves as good, ethical people. Research reveals that unethical decisions
are more likely to occur when:
• the person making the decision fails to see the decision as involving any ethical issues, or
• when a person making a decision believes that any ethical issues that can be identified can be
overcome.
This is because people generally believe that they view the world objectively and we ‘see ourselves
as more fair, unbiased, competent, and deserving than average; and to be overconfident about our
abilities and prospects’ (Robbenholt & Sternlight 2013, p. 1116).
1.2 Hypotheticals
Throughout this subject, you will be encouraged and challenged to assess your awareness and
develop your understanding of ethical decision making by examining hypothetical scenarios and
case studies. These can be considered individually or are also suitable for generating discussion
with peer students or colleagues.
Hypotheticals presented throughout this subject cannot be seen as legal advice or a legal
interpretation of compliance with the Financial Planners and Advisers Code of Ethics
(FASEA Code of Ethics). They are designed to challenge you to pose your own thoughts about what
one ought to do under certain circumstances. For this reason, you might even disagree with the
thoughts here or the opinions of others, which can form a great basis for an ethical discussion.
It is important to remember that the FASEA Code of Ethics comes into effect from 1 January 2020
and that further guidance and clarification on the Code will be provided by the regulator. Both the
Financial Planning Association of Australia (FPA) and Association of Financial Advisers (AFA) have
sought further clarification on the interpretation and application of several of the Standards
(particularly regarding Standards 2, 3, 5 and 6). Financial advisers must determine how they will meet
the ethical standards, and begin now to assess how their conduct, business practices, systems and