“So be sure when you step, step with care and great tact. And remember that life’s a great balancing act.”
— Dr Seuss
Imagine you’re a tightrope walker, precariously balancing on a thin wire suspended high above the ground. On one side, you have the weight of your clients’ interests; on the other, your business objectives. This is the delicate balancing act that Australian Financial Services Licensees (AFSLs) face every day. The wire they walk is the stringent financial services laws, and the audience watching their every move are their clients, their peers and the Australian Securities and Investments Commission (ASIC).
In recent years, the financial advice industry has been under the microscope, with regulatory bodies tightening their grip to ensure ethical conduct. I think we would all agree that the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry, brought to light several instances of unethical behaviour, which lead to a renewed focus on ethics in the financial services industry.
Balancing Act: Client Interests vs. Business Objectives
The financial advice industry is a bit like a seesaw. On one end, you have the interests of your clients – their financial goals, their objectives, their risk tolerance, and most importantly, their trust in your advice. On the other end, you have your business objectives – profitability, growth, market share. Your challenge is to keep the seesaw balanced.
But how do you ensure you are balanced? The answer lies in ethical considerations. Think of ethics as the fulcrum of the seesaw, the point that keeps both ends in equilibrium.
Compliance with Australian Financial Services Laws
Compliance with financial services laws is not just about ticking boxes. It’s about creating a culture of compliance within your organisation. It’s about ensuring that every decision you make, every piece of advice you give, is in line with the law and, most importantly, the best interests of your clients.
Consider the case of Dover Financial Advisers Pty Ltd, which the Court ordered they pay a $1.2 million penalty. Their ‘client protection policy‘ was found to be misleading, as it sought to protect the company rather than the clients. Justice O’Bryan said, ‘many clauses of [Dover’s] Client Protection Policy sought, perversely, to make the client responsible for failings and inadequacies in the advice provided to them’.
Justice Michael O’Bryan found that the title of the Protection Policy “was highly misleading and an exercise in Orwellian doublespeak. The document did not protect clients. To the contrary, it purported to strip clients of rights and consumer protections they enjoyed under the law”.
The Protection Policy was provided to 19,402 clients with statements of advice by representatives of Dover. The Protection Policy purported to be ‘designed to ensure that every Dover client get [sic] the best possible advice and the maximum protection available under the law’”.
When handing down the penalty, Dover’s sole director was also ordered to pay a $240,000 penalty for being knowingly concerned in Dover’s conduct. Dover’s sole Director had contravened section 12DB(1)(i).
Their seesaw was not balanced, in fact it’s safe to say it would’ve been lopsided. This case serves as a reminder of the importance of balancing your seesaw, there are severe consequences if you don’t.
Navigating the Ethical Minefield
Navigating the ethical landscape in the financial advice industry can (at times) feel like you are walking through a minefield. One wrong step can lead to severe consequences like we saw in the above example. But with the right approach and the right culture, you can navigate this minefield successfully.
Firstly, transparency is key. Be open and honest with your clients about your fees, your commissions, and any potential conflicts of interest. Think of transparency as your mine detector, helping you avoid potential ethical pitfalls. Your clients will appreciate your honesty.
Secondly, always put your clients’ interests first. This might seem like an obvious point, but it’s one that may be easily overlooked in the pursuit of your business objectives. Remember, your clients are the reason your business exists, without them, there is no business.
Lastly, keep up to date with regulatory changes, subscribing to Three Hit Tuesday is a great step in the right direction. Financial services laws are constantly evolving, and it’s your responsibility to stay informed. Consider regulatory updates and Three Hit Tuesday as your map, assisting you to navigate the ethical minefield.
The financial advice industry is a high-stakes balancing act. On one side, you have the interests of your clients; on the other, your business objectives. But with a strong ethical framework, a strong compliance culture, and a focus on transparency, you can successfully walk this tightrope.
Remember, the goal is not just to avoid falling, but to perform a balancing act that is so impressive and so ethically sound, that you win the applause of your clients and peers. Because in the end, the most successful financial services licensees are not those who simply stay on the wire, but those who master the art of the balancing act.
The Royal Commission’s findings have shaken our industry, and the spotlight is now firmly on ethics and compliance. As a financial services licensee, you have a crucial role to play in restoring the publics trust in our industry.
Think of yourself as a gardener (one last analogy, I promise). Your clients are the seeds, your advice is the water, and the Australian financial services laws are the fence that protects your garden. Your job is to nurture the seeds (best interest), helping them to grow into strong, healthy plants (meeting goals & objectives). But to do this, you must ensure that your garden is well-tended, that it’s free from weeds (unethical practices), and that it’s protected by a sturdy fence (compliance).
In the end, the ethical considerations in the financial advice industry boil down to one simple principle: do what’s right. Do what’s right for your clients, do what’s right for your business, and do what’s right according to the law. Because when you do what’s right, you’re not just balancing on a tightrope – you’re soaring above it.
So, step onto your tightrope, taking one step in front of the other, navigate the minefield, tend to your garden. Embed a strong compliance culture with an emphasis on ethical considerations. Ensure you balance your clients interests and business objectives with an unwavering commitment to doing what’s right for your clients and your business.
If you find yourself stuck on a tightrope or would like assistance in navigating your own minefield, please reach out, we are here to help.