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The Challenge of ethics and professionalism Or how to create your own Twin Peaks

The last decade of our profession has seen tumultuous changes in regulation and consumer awareness. The changes affected both financial advisers and product providers. The next wave of regulation, from TCF to twin peaks to remuneration reform, all have at their core the objective of putting the client’s interests at the centre, and focus, of any financial service or product.

To a large extent these regulatory reforms have stemmed from the fact that, in the view of the Regulator, self-regulation by the financial services industry was not achieving the desired level of protection for consumers. There is no overnight cure to the ills of our industry. We have to work together to create a professional industry that puts clients first.

Professionalism for financial advisers can, in essence, be built on two core pillars:

Competence and Conduct.

Competence is the knowledge, skills and abilities that a person has developed in their professional field. Conduct is how that knowledge, skills and abilities are directed at clients. Ethical issues typically arise when there is a mismatch between competence and conduct.

For example: a competent advisor might, through choice, act unethically towards clients, misuse their funds or provide products that charge excessive fees or are not suitable to the client’s risk profile.

Can one regard the conduct of an advisor, who lacks the required knowledge and professional skills pertaining to the products he recommends, as unethical, despite the best of intentions of such an advisor?

Recent research in Australia indicates that the major source of unethical conduct stems from a lack of competence. This means that is it not that advisors are necessarily unethical, but that acting with a lack of competence (in other words, expert knowledge) is the biggest problem. This often stems from a lack of awareness of one’s shortcomings.

It is crucial that all financial planning professionals should only operate in areas where they have acquired and demonstrated excellence through education and experience.

To this end, it is regrettable that the level 2 regulatory examinations (REs) were postponed until further notice. Knowing the law, tax and other technical aspects relating to financial products is as essential as is knowing the regulatory requirements to provide advice and intermediary services as tested in the level 1 REs. Delivering the wrong product in a legally compliant manner does not help the client one bit, does it?

Ethical behaviour should always be distinguished from behaviour which simply sets out to conform to legal or regulatory requirements. Whilst the FAIS General Code of Conduct sets out the framework that must be adhered to when providing advice or a service to a client, it does not mean that conforming to the code ensures that one is acting ethically or professionally. In other words, complying with the law does not mean that you are acting ethically. Your client should be put first, in all situations.

One example of working towards an ethical approach is to continually be involved in improving your knowledge and skills. One should not use the postponed introduction of the third leg of the regulatory exams, continuous professional development, as an excuse not to further your knowledge and skills.

Ironically, by applying your mind to further education, you will prove your commitment towards treating your customers fairly, something which you will be required, by law, to do from next year.

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