Fpc002b Ethics And Professionalism In Financial Advice Q&A

Introduction Of :Fpc002b Ethics And Professionalism In Financial Advice

Question 1

Barriers to Ethical Decision-Making:-

These barriers include:

1. Conflicts of Interest: There might be cases where the matter of interest of a financial adviser is not the same as the matter of interest of the clients. For instance, an adviser is likely to recommend products that generate more commissions for the services instead of recommending products that would be suitable to the clients.

Remedy: To address this barrier, the client’s best interest should be made manifest by the advisor through the executive of a transparent and client-centric policy and the adoption of fiduciary responsibility. In professional practice reminders such as regular audits and supervision may assist in compliance with ethical rules.

2. Cognitive Biases: Other cognitive biases may include overconfidence, anchoring effect or confirmation biases which may lead to irrational decisions (Payne et al. 2020). For instance, an adviser may blindly make recommendations on investment products because of previous experience despite the current market conditions.

Remedy: Periodic training of the staff on how to effectively manage biases, seek out diverse opinions and try to make a more insightful analysis of the problem can go a long way in reducing the effects of cognitive biases as observed here.

3. Pressure to Meet Targets: One main problem which arose from the financial advisers industry is that many of them are under a lot of pressure to sell their products, thus they may give their clients unsuitable advice, leading to the purchase of risky investment products which are not suitable for the client.

Remedy: Organizations in the financial industry can also modify organizational cultures and compensation schemes to enhance client retention as opposed to focusing only on short-term sales. A lot of attention needs to be paid to ethical decision-making as an aspect that should be incorporated into the KPIs of the advisers.

4. Lack of Knowledge or Understanding: This results in poor recommendations as the advisers themselves may not possess adequate knowledge to enable them to comprehend the intricacies of such products.

Remedy: Co-continuing professional development and specialization could guarantee that advisers are informed. This should mean that only advisors who have sufficient knowledge about the products should offer advice in order to ensure proper decision-making by the clients.

Figure 1: Professionalism and Ethics on Financial Planning

(Source: https://www.semanticscholar.org/)

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Question 2

Ethical Theories Applied to Rory’s Conduct:

1. Deontological Ethics:

Deontological ethics are based on the belief that there is inherent right and wrong within the actions and decisions made and one determines the result on the basis of purpose, duty and principles as opposed to the consequences of the action. In this case, it is Rory’s responsibility as a professional financial adviser to adhere to the professional codes of conduct and the Code of Ethics. Advice is an activity that requires structures, it has to be formal, must not be camouflaged and must be well documented (Hazgui and Brivot, 2020). With reference to the above-mentioned professional duties, Rory breaks the rules in making her recommendation because of her close acquaintance with Darcy. Even though Rory’s intention is to help she is not acting fairly, and her decision is not as evidence-based as she should be to execute her duty properly, thus making her conduct deontologically unethical.

Rationale: Based on deontological ethics, Rory is not being ethical in her deal since she is doing it in ways that do not meet the formal rules of financial advising even if it will benefit her, Darcy or otherwise. Proper documentation and record keeping are also violated while there is a lack of transparency to suit her professional requirements.

2. Teleological Ethics (Consequentialism):

Consequential teleological ethics especially provide the basis for determining the right or wrong of action through the consequences produced. According to this perspective, the status of Rory’s behaviour would depend on the outcomes she had given to her advice. From this perspective, a consequentialist might therefore reason that because her actions make financial improvements in Darcy’s life, her conduct is ethical.

Rationale: According to this theory, Rory’s conduct may be considered ethical in terms of teleological ethics if the end justifies in this case entails a positive effect on Darcy. Rory’s suggestion is imperfect, it is not highly structured and this could pose some problems to Darcy in the future.

Question 3

Motivated Blindness and Rory’s Ethical Decision-Making

Motivated Blindness: is a phenomenon that involves ignoring unethical behaviours when it is personally advantageous not to know they exist. This happens in situations whereby people decide to look the other way on concerning actions to avoid confrontation of the relation.

In the case of Rory, motivated blindness has probably played a role in why she does not report to others that Darcy got insurance approval (Roberts and Termuehlen, 2021). Although Eliza as a professional underwriter should have held that there were conditions which should have been imposed due to the knee problem that Darcy suffered in the past; she doesn’t because she wants to support Darcy, her almost son-in-law.

Remedy: To reduce motivated blindness in this case Rory should avoid being influenced by any kind of relationship with the people in his workplace. She could also tell Linda's concerns about insurance approval to Linda so that she would do a proper investigation into it. Ethical training that occurs frequently would reduce motivated blindness because the attorney has to understand that any case he or she is handling is unique and should not be swayed by his or her personal interests.

Figure 2: Ethics in Accounting

(Source: https://www.highradius.com/)

Question 4

Linda's Actions and Relevant Legislation:

1. Corporations Act 2001: Under the Best emphasis added Section 961B, financial advisers are mandated to act in the best interest of the clients. It may not have been proper for Linda to fast-track the process and assume that Darcy knew what was expected of him in her quest to meet her deadline since any work done at the beginning of the process had to be redone. She should have made a proper evaluation and make sure Darcy filled the insurance forms in the manner that he comprehended the entire insurance consequences all through.
2. Insurance Contracts Act 1984: The Duty of Disclosure makes the client disclose every fact and circumstance that is or might be relevant to the insurance policy the client is applying for. Linda breached this law by assuming that Darcy knew what he needed to do, she should have made Darcy declare his knee injury to the underwriters (Lo and Ross, 2024). By not giving proper instructions on the process of applying for the insurance or not leading Darcy through the entire process to ensure that he applied for the insurance in the right manner, Linda was not serving his best interests.

Rory’s Actions and the Code of Ethics 2019:

Standard 1: Personal ethical responsibility of financial planners and advisers› as outlined in the Financial Planners and Advisers Code of Ethics 2019 states that a planner or an adviser must act with integrity and in the best interests of the profession. It undermines Rory’s integrity that she decided to give Darcy informal advice and that she decided not to bring up her issues with the insurance approval because they would not be beneficial for one world (Barthel and Lei, 2021). This behaviour is unethical and does not speak to the ethic of transparency and professionalism demanded by the Code, therefore eradicating the credibility of the financial planning profession.

Question 5

Financial Planning: A Recognised Profession

To make a decision on whether financial planning is professional or not now, one has to take the help of Wilensky’s Model of Professionalisation. This model outlines the stages through which an occupation progresses to become a profession:

1. Establishment of Full-Time Occupation: Financial planning has grown to be more than an annual or biannual affair where experts devote their entire day to supporting this criterion by offering financial advice.
2. Development of Training and Education: An important aspect of the process of professionalisation is creation of special educational programs. Financial planners are nowadays expected to complete certain courses like the level 6 financial planning qualification and moreover, many countries have accreditations including the CFP or the more recent FASEA in Australia (Law and Zuo, 2021). The credentialing of educational attainments puts much emphasis on the profession’s concerns for knowledge and proficiency.
3. Formation of Professional Associations: They are opened to the public through professional bodies such as the Financial Planning Association (FPA) and Chartered Financial Analyst (CFA) Institute through setting structures that offer and uphold financial planning industry standards, ethical codes and professional development. This shows the institutionalisation of the profession and its structural framework on how the same is supposed to work.
4. Code of Ethics and Conduct: Employment positions, for example, have an authoritative code of ethics in order to govern the actions of the employees. One recent example is the Financial Planner and Adviser Code of Ethics 2019 which lays down the tone and standard for ethical behaviour and client-orientated approach of financial advisers (Fatemi, Hasseldine and Hite, 2020). This then is a formal code that is one of the defining features of a profession and helps to ensure that the people within it behave with integrity.
5. Recognition by Society and Legal Regulation: There is nothing more that can be said about a profession than that it has become legally regulated. It is currently criminal in many countries including Australia under the Corporations Act 2001 and the Financial Conduct Authority (FCA) in the UK to be involved in financial planning without proper legislative authorisation.

Is Financial Planning a Recognised Profession?

Based on the above criteria, financial planning has significantly developed in order to be recognised as a profession. It provides some of the essential aspects like education qualification, professional associations, code of ethics, and regulation. However some have observed that even in this perspective, financial planning is still partially an occupation as there is variation in the standards as well as the perception of the public in such practices (Christensen, Seabrooke and Wigan, 2022). That is why while many countries officially have strict regulations, there remains global inconsistency and the role’s connection to selling jobs that may not allow the profession to gain complete official recognition in some instances even today.

Therefore, judging by Wilensky’s Model, financial planning can be regarded as a profession for the most part but the degree of professional status depends on how the international standards and the society respond to this occupation.

Reference list

Journals

• Barthel, A.C. and Lei, S., 2021. Investment in financial literacy and financial advice-seeking: Substitutes or complements?.The Quarterly Review of Economics and Finance,81, pp.385-396.
• Christensen, R.C., Seabrooke, L. and Wigan, D., 2022. Professional action in global wealth chains.Regulation & Governance,16(3), pp.705-721.
• Crystal, N.M. and Giesel, G.M., 2024.Professional Responsibility: Problems of Practice and the Profession [Connected EBook with Study Center]. Aspen Publishing.
• Fatemi, D., Hasseldine, J. and Hite, P., 2020. The influence of ethical codes of conduct on professionalism in tax practice.Journal of Business Ethics,164, pp.133-149.
• Hazgui, M. and Brivot, M., 2020. Debating ethics or risks? An exploratory study of audit partners’ peer consultations about ethics.Journal of Business Ethics, pp.1-18.
• Kowaleski, Z.T., Sutherland, A.G. and Vetter, F.W., 2020. Can ethics be taught? Evidence from securities exams and investment adviser misconduct.Journal of Financial Economics,138(1), pp.159-175.
• Law, K.K. and Zuo, L., 2021. How does the economy shape the financial advisory profession?.Management Science,67(4), pp.2466-2482.
• Lo, A.W. and Ross, J., 2024. Can ChatGPT Plan Your Retirement?: Generative AI andFinancial Advice.
• Payne, D.M., Corey, C., Raiborn, C. and Zingoni, M., 2020. An applied code of ethics model for decision-making in the accounting profession.Management Research Review,43(9), pp.1117-1134.
• Roberts, L.W. and Termuehlen, G., 2021.Professionalism and ethics: Q & A self-study guide for mental health professionals. American Psychiatric Pub.

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