Financial Advice Ethics: Case Study Analysis and Frameworks

This report provides a comprehensive analysis of ethics in financial advice, addressing key concepts such as ethical frameworks, cognitive biases, and professional standards. The report examines the role of ethical frameworks for financial planning professionals, the impact of cognitive biases on advisors and clients, and the application of deontological and virtue ethics. It explores ethical behavior, motivated blindness, and slippery slope scenarios through case studies. The analysis delves into the elements maintained by professional councils to establish credibility. The report highlights the importance of experience, capabilities, and ethical conduct for financial advisors, emphasizing the need for trustworthiness, honesty, and fairness in client relationships. It concludes with a discussion of how ethical principles can guide decision-making and mitigate potential conflicts of interest in the financial services industry.

Running head: Ethics in Financial Advice
Ethics in Financial Advice
Name of the Student:
Name of the University:
Author Note:

1ETHICS IN FINANCIAL ADVICE
Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................3
Answer to Question 3:................................................................................................................3
Answer to Question 4:................................................................................................................4
Answer to Question 5:................................................................................................................5

2ETHICS IN FINANCIAL ADVICE
Answer to Question 1:
The role of an ethical framework for financial planning professionals can be explained
in different cases. The process involves the Recognition of the specific ethical issue where
the professional has to locate the ethical issue then to find out whether the issue is an ethical
dispute or just factual and conceptual disputes. The impact of cognitive, judgments and
decision biases on financial advisors and the client are dependent on different factors like
present-bias which is measuring the present benefit with the future benefit, Loss aversion
means to measure the value of something when it will be absent, status quo-bias and default-
bias are the decisions which the individuals take to do the job or not (A Behavioral Theory of
Legal Ethics 2015).
Teleological ethics are one of the types of ethics which means that the right can be
derived from the theory of the good. By this decision of applying teleological ethics by
professionals can negatively impact the retail clients as because clients are generally
supposed to make decisions on their moral basis. For example, Damien is an advisor of some
financial planning firm and Maxwell is the owner of that firm, Maxwell has not issued client
FDS, and Daniel raised an issue regarding this. Here Daniel is following the Teleological
ethics as this is based upon the morality or non-morality of the outcome of the decision and
this decision will impact the client to get the FDS benefit from the firm
(Sevenpillarsinstitute.org. 2019).
Confirmation bias is the type of unconscious bias where there is a tendency to collect
information that will confirm the pre-existing beliefs or the assumptions. For example: let
Sally be in support of gun control and Henry being on the opposite opinion. These two people
have a different opinion on a similar subject and their explanations are also dependent on

3ETHICS IN FINANCIAL ADVICE
their beliefs. Even after reading the same story, they will tend to shape the story in their way
keeping the details in mind and confirming the beliefs.
Answer to Question 2:
The deontological theory states that some of the acts are wrong always, even when the
act has positive results afterward. Actions under this ethics are always judged separately of
their result. In this case, study, if Frank will disclose about the rainy day accounts of Tony,
then the action will not be pleasurable for Laura as she might get hurt after knowing the fact
that Tony had hidden all these information from her and that he was never interested in
growing joint assets with her. However, this information would help Laura to plan her
finances accordingly in the future. Here the confession from Frank’s side will follow the
deontological theory (Asic.gov.au 2018).
Virtue ethics frameworks are dependent on the person-based instead of action-based
decisions. This ethics states the moral characteristics of the person rather than the ethical
duties. Frank has decided to be the advisor for Laura only and the quit as Tony’s advisor as
according to him, that will help Laura to manage her finances well and helping Tony even at
this stage won’t be justified for Laura. Frank’s morals are described here as he has decided to
leave contact with Tony as well as to avoid future conflicts with him and so that Laura could
trust him with her finances at this stage (Fpa.com.au 2013).
Answer to Question 3:
The ethical behavior of an individual depends upon the actions which demonstrate the
person’s values, trustworthiness, honesty, competence, diligence and fairness. While Frank
was dealing with Tony’s finances and investments, he was ethically maintaining all his duties
towards him like keeping all his financial secrets or to advise Tony with required financial
help and etc. when Frank was helping Laura with her finances and left a communication with

4ETHICS IN FINANCIAL ADVICE
Tony, and he was again maintaining his ethics (Ifa.com.au 2018). Frank has also revealed the
essential facts about Tony’s rainy day accounts which were needed for Laura to know as that
would help Laura in a lot way to file reports against Tony and get help from the financial
entities as well. Frank has decided to maintain his ethical behavior as that defines his
trustworthiness character. When Frank was dealing with Tony’s finances, he noticed some
disputed in the accounts but Frank did not enquire about the information as that information
was very personal. Here also Frank maintained his ethical behavior towards his friends
(Psc.gov.au 2014).
The relevant ethical framework which analyses Frank’s actions is the Virtue
framework. According to this framework, the person is identified with the character traits like
positive behavior or negative behavior which might motivate other people in a situation. Here
the individual is more concerned about the ethical values and what kind of reaction he/she
should have in a specific situation. Frank also took decisions keeping in mind what action
would be required for that particular situation (Unswlawjournal.unsw.edu.au 2017). When he
was advising Tony regarding his financial and investment purpose, Frank maintained the
ethics with him. But when Frank felt that it is necessary to reveal the financial details of Tony
to Laura, he did that because this action was much needed in that situation to help Laura.
However, following the Virtue framework may put the individual in some unwanted case like
Frank felt in the time of not discussing the source of money for the expensive car. He should
have asked Tony before about that and then only all his secrets and frauds would have come
into the picture. Frank felt like asking before but his ethical beliefs stopped him from asking
such personal questions to Tony.

5ETHICS IN FINANCIAL ADVICE
Answer to Question 4:
Motivated blindness is an act that refers to overlooking the behavior that is unethical
of others. However, it might be in others' interest to stay ignorant. In the case study, Frank
was influenced by motivated blindness at one point when he overlooked the fraud behavior of
Tony when he gifted Laura the most expensive car. Frank knew very well about the financial
condition of Tony and Laura and it was clear that Tony was not capable of buying such
expensive car and Laura had no idea from where did Tony manage to collect such a huge
amount of money. Frank knew that arranging this much amount is not possible by
maintaining the ethics, but still, he remained silent because that continued the relation of him
with them. This blindness can be avoided by rooting out the conflicts of interest. If Frank
remained more aware of the frauds by Tony, then the situation could have been avoided.
However, only awareness may not reduce the adverse effects of decision making (Tpb.gov.au
2019).
Slippery slope refers to the behavior of an individual when he/she ignores the
gradually growing unethical behavior of the other person. In this case study, Laura was well
aware of their financial conditions and she knew that buying an expensive car will be next to
impossible for them. However, Tony managed to buy one such car and didn’t even bother
about the installments. Laura somehow overlooked the fact that Tony might have done some
frauds for gathering such a huge amount. She ignored Tony’s gradually growing unethical
behavior which led her to this situation. This situation could be avoided if Laura remained
more alert when she sensed even small frauds by Tony and asked him immediately.
Investigating fraud is also an essential part of the remedy (Afca.org.au 2019).

6ETHICS IN FINANCIAL ADVICE
Answer to Question 5:
Professional councils maintain certain elements which help them to get recognized as
professions. The elements include the experience of a professional which refers that an
individual should have specific personal capabilities along with some expectations of the
experience and those are required to get practiced as a professional in a discrete area of
profession (Business Insider Australia 2018). Even outside the financial services, all other
services also need experience of the individual to possess any job. The capabilities are judged
accordingly in the training period and hence the expectation from their expectation is set after
that (Legislation.gov.au 2016).
The experience of any individual is evaluated by Financial Planning Association
(FPA) while granting a Certified Financial Planner (CFP) designation because a CFP
professional has the capability of making a positive difference to anyone’s financial future.
They are needed to guide clients with their finances and advise them where to and how they
should be spending their money to have long-term benefits. The evaluation of the experience
of a CFP is done with their capability of handling a financial planning letter, financial
statement preparation, and investment planning for the client, education planning for the
client, retirement planning and many more. These financial services are essential for the
clients of the Financial Planning Association (FPA) as clients rely on the finance
professionals for these important tasks and await guidance from them. Good knowledge of all
the financial statements along with their practical experience, is needed for the individuals to
pursue as the certified Financial Planner by the association. All the vital information of the
client is provided to the professional which should be carefully handled; otherwise, this might
burden the client as clients appoint the professionals for minimizing their financial hinders.
Hence, experience acts as an essential element for every type of job profile (Pc.gov.au 2017).

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References:
A Behavioral Theory of Legal Ethics 2015. A Behavioral Theory of Legal Ethics.
Afca.org.au 2019. AFCA approach to adviser conduct obligations - Australian Financial
Complaints Authority (AFCA). [online] Afca.org.au. Available at:
https://www.afca.org.au/news/media-releases/afca-approach-to-adviser-conduct-obligations
[Accessed 24 Jan. 2020].
Asic.gov.au 2018. Professionalism and other things | ASIC - Australian Securities and
Investments Commission. [online] Asic.gov.au. Available at:
https://asic.gov.au/about-asic/news-centre/speeches/professionalism-and-other-things
[Accessed 24 Jan. 2020].
Business Insider Australia 2018. Trust in financial planners is at an all-time low but
Australians still want advice. [online] Business Insider Australia. Available at:
https://www.businessinsider.com.au/financial-planners-trust-all-time-low-advice-2018-11
[Accessed 24 Jan. 2020].
Fpa.com.au 2013. [online] Fpa.com.au. Available at:
https://fpa.com.au/wp-content/uploads/2015/09/FPA_CodeofPractice_July2013.pdf
[Accessed 24 Jan. 2020].
Ifa.com.au 2018. Code of ethics a ‘game changer’, says FPA. [online] Ifa.com.au. Available
at: https://www.ifa.com.au/news/26227-code-of-ethics-a-game-changer-says-fpa [Accessed
24 Jan. 2020].
Legislation.gov.au 2016. Corporations Amendment (Professional Standards of Financial
Advisers) Bill 2016. [online] Legislation.gov.au. Available at:

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https://www.legislation.gov.au/Details/C2016B00192/Explanatory%20Memorandum/Text
[Accessed 24 Jan. 2020].
Pc.gov.au 2017. [online] Pc.gov.au. Available at:
https://www.pc.gov.au/__data/assets/pdf_file/0020/221870/sub026-financial-system.pdf
[Accessed 24 Jan. 2020].
Psc.gov.au 2014. New white paper: Professionalisation of financial services | Professional
Standards Councils. [online] Psc.gov.au. Available at: https://www.psc.gov.au/news-and-
publications/latest-news/new-white-paper [Accessed 24 Jan. 2020].
Sevenpillarsinstitute.org. 2019. [online] Available at: https://sevenpillarsinstitute.org/kantian-
duty-based-deontological-ethics [Accessed 24 Jan. 2020].
Tpb.gov.au 2019. Information Sheets | TPB. [online] Tpb.gov.au. Available at:
https://www.tpb.gov.au/information-sheets [Accessed 24 Jan. 2020].
Unswlawjournal.unsw.edu.au 2017. [online] Unswlawjournal.unsw.edu.au. Available at:
http://www.unswlawjournal.unsw.edu.au/wp-content/uploads/2017/09/40-1-7.pdf [Accessed
24 Jan. 2020].