Question | The role of ethical frameworks and professional standards within the financial planning profession.

LO1: Explain the role of ethical frameworks and professional standards within the
financial planning profession.
Trustworthiness, competence, honesty, fairness and diligence are the basic pillars of ethical
behaviour. Ethical frameworks like the Financial Adviser Standards and Ethics Authority
(FASEA) Code of Ethics are essential for ensuring ethical behaviour among financial advisors.
Unethical conduct on their part could not only hurt the interests of their client but may also
erode the credibility of the entire financial system devised to safeguard the future of elderly
people of the society.
The basic principle for ethical conduct is that the professional financial advisors must keep
the client's interest at the top and never compromise on it. A relationship between based on
mutual trust ensures higher standards of service and duty than the one based on statutes or
legally binding contract. Thus, by promoting trust, honesty, fairness and diligence the ethical
frameworks help in maintaining high professional standards. (Smith, 2019)
LO2: Assess the impacts of cognitive, judgement and decision biases on financial advisers
and their clients.
While the behaviour of clients, who usually lack financial literacy, may be driven by
emotions rather than reason and they may not be able to figure what is the best
investment, financial advisors may also be influenced by cognitive biases that may result in
bad choices. Investment decisions have to be based on proper analysis of the financial
situation and goals of the client and financial advisors need to be aware of their cognitive
biases.
Behavioural economics has identified some basic cognitive biases such as inclination to
weigh the instant benefits moreover likely higher benefits future (present bias), value what
one has in possession more than what one does not have(loss aversion), continue with old
choices ( status quo-bias) and make no choice and go with default option ( default bias). A
financial advisor who is unable to overcome his biases, emotional or cognitive, may not
serve the best interests of the client. (Richards and Morton, 2019)

Scenario 1
(a) Discuss the issues raised by this scenario concerning:
(i) A relevant barrier to ethical decision making which may be influencing Dino
The Dino Salerno is concerned about the future of his second wife Phoebe as his kids
from the first wife Maria do not get along with her well. As his business is owned by the
family trust will all go to his kids, he wants to change his will to ensure that the benefit of his
super and life insurance goes to Phoebe. However, as per his l lawyer’s advice, he cannot
legally change his will now as he has been diagnosed with dementia. A person has to be in a
sound mental state for making a will. This is the barrier that is influencing Dino from taking
an ethical decision. (Spits, 2019)
(ii) How Standards 1, 2 and 3 of the FASEA Code of Ethics apply to this situation
Trustworthiness, competence, honesty, fairness and diligence are the basic pillars of
ethical behaviour. The standard 1, 2 and 3 provide a framework to reinforce these values in
the conduct of financial advisors.
The laws are framed to regulate the functioning of governments, the conduct of people and
businesses have to be complied with by all concerned. The financial advisors are also
governed by certain laws like the Corporations Act and the Financial Adviser Standards and
Ethics Authority Ltd (FASEA) Code of Ethics. The objective of the FASEA Code of Ethics is to
ensure that financial advisors observe high standards of professionalism and they must act
in a manner that helps build a trustworthy relationship with the clients.
The standard 1 of FASEA Code of Ethics simply asserts that financial advisors should not ever
try to circumvent the law or act in a manner that goes against the intent of the law. The
financial advisors need to carry out their professional responsibilities within the framework
of the law for not only for providing a fair deal to their clients but also for their own sake.
The framework has been specifically designed to ensure that Australian consumers have
trust in the financial system. Unethical and illegal conduct by financial advisors will hurt
their credibility and in the process, the people may altogether lose faith in the financial
system. (Fpa.com.au, 2019)
Similarly, Standard 2 mandates that they must maintain the highest level of integrity and
act in the best interests of their clients. Thus, a financial advisor as to have in-depth

knowledge of clients financial circumstances and he cannot solely rely on the information
provided by the client alone, he has to make his inquiries and also figure out his future long
term objectives. Dino Salerno is a close friend of Jim Gardener but to ensure ethical conduct
he has to further investigate what Dino told him.
Integrity requires openness, honesty and frankness in dealing with clients. Thus, lack of
openness, honesty and fair play will amount to breach standard 2. A financial cannot afford
to be lax on this count even if the client fails to provide the requisite information.
The Standard 3 pertains to conflicts of interest or duty, it lays down that a financial advisor
must stay away from advising a client with whom he has a conflict of interest or duty. Since
Dino Salerno and Jim Gardner are close friends and Dino has been helping Jim in boosting
his business with his referrals, there is a conflict of interest. Ethically, he should refrain from
advising Dino. (Riskinfo.com.au, 2019)
(iii) The application of the value of Honesty to this scenario.
“Honesty’ and ‘fairness’ are the core values that promote ethical behaviour. These values
mandate that a professional must conduct with complete integrity and transparency in all
their professional dealings with their clients, colleagues and all others involved with them in
the professional sphere. They should also maintain objectivity while recommending financial
products and professional services to their clients. They must properly investigate and figure
out a client’s need for professional services and make an objective assessment before
making a recommendation.
The principle of honesty demands that Gardner should not encourage Dino in embarking on
preparing a backdating will and advise him some other legal options to help him address the
interests of his wife.
(b) Given your analysis, how should Jim respond to Dino?
Jim is a close friend of Dino and values his contribution in helping the growth of his
business. However, being a professional financial advisor he should not get carried away by
emotions over the situation of his friend and refrain from indulging in unethical and patently
illegal action of certifying a backdated change in the will.