The primacy of ethics in the provision of financial advice

Abstract

Most people need professional advice to navigate complex financial markets. However, information asymmetry between adviser and client makes the assessment of advice difficult, and is exacerbated when providers are motivated by self-interest. This undermines the effectiveness of the financial system. New regulations aim to mitigate such issues, prohibiting some conflicts of interest and imposing educational requirements and a code of ethics for financial advisers practising in Australia. An Australian case study highlights the main ethical issues and suggests that the lens of virtue ethics can assist the development of more appropriate financial advice, and inform further regulatory developments.

Ethics in financial planning: Analysis of ombudsman decisions using codes of ethics and fiduciary duty standards

“…For financial planning to professionalise, the sector needs to embrace the role of ethics in financial advice. Bruhn and Asher (2020) conduct a qualitative analysis of parliamentary inquiries and in-depth interviews surrounding the Storm Financial Services scandal 1 and find a need for professional financial advice and that ethics needs to take a primary role in professional advice. That is, the ethical disposition in providing financial advice is inherently linked to the quality of financial advice provided.…”

“…The concept of trust is inherently linked to ethics and is relevant to financial planning (Bruhn and Asher, 2020) because trust is an important determinant of seeking financial advice (Burke and Hung, 2019; Lachance and Tang, 2012; Monti et al, 2014). Hunt et al (2011) found that Australian financial planners do not realise how important trust is from the client’s perspective and overestimate clients’ trust in them.…”

“…The limited research on ethics in Australian financial planning research suggests that the ethical capabilities of Australian financial planners could be improved (Bruhn and Asher, 2020; Murphy and Watts, 2009). Research based in the United States illustrates the prevalence of misconduct in the financial advice sector.…”

The professionalization of financial planning in Australia: an institutional logics perspective

“…Large financial institutions need to review whether a profit-making logic is appropriate when providing financial advice. A growing amount of research shows that financial planning is an ethicsbased practice (Bruhn and Asher, 2021;. A profit-making logic that rewards financial planners' selling abilities through commissions is at odds with an ethical approach and can lead to serious implications for consumers, government, and the financial institutions themselves (Steen et al, 2016).…”

“…Also, FASEA has created, and then had legislated, a code of ethics for financial planners. These initiatives seek to improve the professionalism of financial planners by increasing education levels and making ethics a cornerstone of financial planning practices (Bruhn and Asher, 2021;. However, these changes somewhat marginalize the value of the professional bodies, where maintaining educational levels and a code of ethics would normally reside.…”