Ethics and Professionalism in Financial Advice - Question 1

Ans a)- A client who is 58 years old got a divorce and in turn had no assets left. To avoid bankruptcy he wanted to access the funds from his superannuation for paying out the debt and to purchase a house. Client wanted to retire from his work and withdraw the funds that are preserved from the superannuation and then he plans to go back to work after a month. All these facts were provided to the advisor.

The advice provides was to withdraw the funds from execution only arrangement and then accordingly use the funds to pay off the debt. This was an ethical dilemma for the advisor as that led him to make the client breach the legislation but the results were in favor of the client. According to Deontological theory, actions should be judged independently of their outcomes. The act that has been carried out is morally bad but it has unintentionally lead to an outcome that is favorable (Mandal, Ponnabath & Parija, 2016). So, the situation raised an unethical dilemma as if the adviser has gone according to the proper method than the client would have lost everything with its funds. This put the advisor in an ethical dilemma whether to carry out the right process or do it in favor of the client best interest.

Ans b)- Partisan relationship should be such where lawyer-client relationship is such that the advisor are supposed to consider the benefits of their client above their interest. They should make sure that even if they are paid less or given nothing in return still the advice should be appropriate.

Suppose there is a client who want to invest in the stock. The age of the client is around 60 and he wants to take a huge risk and invest in equities and IPO’s of small companies which is risky but the client has a backup and wants to go for it. There is a company named XYZ which has recently launched its IPO and advisor knows through inside information that it will perform well. But, letting the client know the information or using that information will be ethically wrong while it will be as per partisanship in the best interest of client. So, of the advisor goes as per ethical values it will adversely affect the partisanship. Thus, making it a hard choice for the advisors.

Ethics and Professionalism in Financial Advice - Question 2

a) Virtue ethics

Virtue ethics is at present, one of the principle three approaches taken up in normative ethics. It focuses mainly on the moral character or the virtues that a person holds. As per this theory, the financial advisor should have kept in mind the virtues of a professional, ethical manager like being honest, fair, prudent, showing courage and being compassionate at a time when his client is trying to make him an accomplice in an illegal activity. He should have maintained his integrity by standing up to the client and explaining to him the consequences and the unethical nature of what they were planning (Hursthouse, Rosalind and Pettigrove 2018).

b) Deontological theory

According to Zalta(2016), deontological theory refers to the moral philosophical idea that rather than looking at the consequences of an action, it should be evaluated whether an action in itself is wrong or right. According to this theory, the financial advisor should have evaluated what is wrong and right and should have gone down the ethical lane by explaining his client the illegality, violations and consequences of his actions. He should have stopped the client as this goes against the integrity and professionalism that should be maintained as per the financial standards of the country. His decision to be party in this shows that he has failed to evaluate the fact that indulging in window- dressing is a crime and could land both of them in jail as well as lead to heavy lawsuits and fines against them.

Ethics and Professionalism in Financial Advice - Question 3

a) The financial advisor’s behavior was highly unethical as he participated in the client’s misdoings and was party to not following the principle of full disclosure that requires disclosing all financial information and transactions made by the firm during the financial year. 

As per the deontological and utilitarian theories of ethics, the financial advisor should have evaluated what is right and wrong and chosen to standup to his client by defying his aspirations of evading the law by not paying taxes and indulging in wrongful representation of his financial statements (Australia. The Financial Adviser Standards and Ethics Authority Limited, 2020)The advisor should have followed the standards as stated by the govt. that include:

  • Ethical behaviour
  • Quality process
  • Client care
  • Professional commitment

These standards would have helped the advisor understand his duty of sticking to the standards as specified by the ASIC, acting in the best interests of the client and the public and specify all the risks, advantages and disadvantages of all the activities and advise that he gives to the client.

b) The financial advisor should have looked at all alternatives and given consultation and support to the client to revamp his business by getting more funding or debt from external sources instead of letting him get away with these illegal acts.

Ethics and Professionalism in Financial Advice - Question 4

Overvaluing Outcomes

As per Bazerman and Tenbrunsel (2011) , most clients would reward the end results instead of the quality of the decision- making. This would lead to clients rewarding behaviour that is illegal and unethical as they tend to usually be more profitable for them and would help them do well. It should be kept in mind by the financial advisor that the client would be very rewarding and congenial with him in the short- term. But over the long- term, these unethical decisions may have disastrous implications for which the financial advisor himself would be blamed and penalised instead of the client understanding the ethicality of their decisions that they had made together for gaining more profits.

They should have not according to ethical values and standards indulged in window-dressing of accounts and paid the taxes to the authorities as per the income earned that year. The financial advisor should tell the client that it is essential to focus on the ethical process of conducting operations or both of them could face the harsh consequences of committing financial fraud in the long-term.

Motivated Blindness

The companies or the clients usually see everything as per what they like and the illegal activities that they may indulge in are often overlooked by them as per their discretion and interests. When they find something profitable, they tend to look beyond the ethicality of the decisions being made and look for ways to make more and quick money (Bazerman and Tenbrunsel 2011).

The client was only looking to save money by evading taxes and not showcasing his real income in his financial statements to his stakeholders because he sees profit in this decision that he would have considered a criminal activity. The profitability in this decision leads to immoral and irrational decision-making on the client’s part and lead him to become an unethical businessman who is looking out only for his own interests and not his stakeholders. The client can try and understand the unscrupulous nature of his activities and make his business processes more efficient and productive in order to get more gains and not indulge in any illegal practices only for the sake of money. 

Ethics and Professionalism in Financial Advice - Question 5

Ans a)- After the change the minimum requirement for FASEA of an entrant is an approved diploma of graduation that comprised of 8 subjects and is relevant for the career changers. While the minimum requirement for an existing adviser is one bridging course. The three bridging courses are:

  • Financial Advice Regulatory and Legal Obligations
  • Ethics for Professional Advisers
  • Client and consumer behavior, Engagement and decision making.

With this the advisers are also required to complete 40 hours of qualifying CPD activities in each of the CPD year with a minimum requirement in the areas given below:

  • Competence in technology: 5 hours
  • Client care and practice: 5 hours
  • Regulatory compliance and protection of consumers: 5 years
  • Professionalism and ethics 9 years
  • General- no minimum

These changes came into effect from the year 2019 for minimum educational qualification requirement under FASEA.

Ans b)- According to a Senior regulatory expert Niall Coburn in Thomas Reuters, the changes that have been made will not only increase the compliance but also the financial standards in Australia. Also, these requirements will ensure a benchmark for the training that is ongoing and also the education concerning provisions of financial advice for the public at large (FASEA new requirements, 2020).

The minimum requirement changes will set a minimum education that is required by every personnel who is entering or already working as financial advisor. This will help in making sure that appropriate knowledge in there with every person who is providing an advice related to finances. So, the changes that have been made are appropriate and will help in ensuring that right decisions are delivered to the client. The decision will be more reliable as the advisor will have proper training also which is required by them and is supposed to be completed.

References for Ethics and Professionalism in Financial Advice

Australia. The Financial Adviser Standards and Ethics Authority Limited. (2020)Code of Ethics Standard commences. Available at: https://www.fasea.gov.au/code-of-ethics/

Bazerman, M. and Tenbrunsel, A. (2011).Ethical Breakdowns.[Online]. Available at: https://hbr.org/2011/04/ethical-breakdowns (Accessed : 16th July 2020) 

BiljanaĐorđević, B. and Figar, N. Managing an Ethical Dilemma, Economic Themes 54(3), [Online]. Available at: https://www.researchgate.net/publication/312564304_Managing_an_Ethical_Dilemma. (Accessed : 16th July 2020) 

FASEA New Requirements Overeview. 2020. Retrieved from: https://mco.mycomplianceoffice.com/blog/fasea-new-requirements-overview

Hursthouse, Rosalind and Pettigrove. (2018). Virtue Ethics.[Online]. Available at: https://plato.stanford.edu/entries/ethics-virtue/ (Accessed : 16th July 2020) 

Mandal, J., Ponnambath, D. K., & Parija, S. C. (2016). Utilitarian and deontological ethics in medicine. Tropical parasitology6(1), 5.

Zalta, E.N. (2016).Deontological Ethics.[Online]. Available at: https://plato.stanford.edu/entries/ethics-deontological/ (Accessed : 16th July 2020) 

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