The Code is all about conduct and competence. All people working in financial services providing advice and selling financial products to the general public must adhere to the Code. It is now expected that the wholesale/institutional market will also adopt the Code. They should be doing that anyway under their own professional standards.

In the earlier blog we looked at Part 2 of the code covering competence, knowledge, and skill. In this section we delve into Part 1 covering key standards of ethical behaviour, conduct and care. The following matrix highlights the key features all firms must abide by: Code of conduct part 1 cheat sheet.

Ethical behaviour: Do all financial firms have the same ethical behaviour, client conduct and duty of client care? From experience in global capital markets embracing private and corporate banking, stock broking, fund management and global investor services there are significant differences. Whilst all market segments make it clear in their mission statements and corporate standards, how they get there, can differ.

If we take ethical behaviour, it is expected that all financial professionals must have high standards of ethical behaviour (that which is morally good and correct) however this ideal can be overshadowed by the profit imperative and “bank comes first” attitude prevalent across many financial institutions.

According to Behavioural Science in the 21st Century the five most common unethical workplace behaviours are:

  1. Misuse of company time
  2. Abusive behaviour
  3. Employee theft
  4. Lying to employees
  5. Violating company internet policies

To manage unethical behaviour there is usually a clause in employee’s contract of employment referring to such behaviour and how it can lead to dismissal, termination of employment. In financial services, the CFA Institute Code of Ethics and Standards of Professional Conduct provides a good opening position/ sound benchmark (for reasons of brevity we have cherrypicked the key expectations):

  • Act with integrity, competence, diligence, and respect
  • Place integrity of profession and interests of clients above your own personal interests
  • Use reasonable care and exercise independent professional judgement when conducting and providing business services
  • Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and their profession
  • Promote integrity and viability of global capital markets for ultimate benefit of society
  • Maintain and improve professional competence and strive to maintain and improve the competence of your profession

When firms fail to put the client first the result is always a painful outcome for clients. Regulators key battle cry is “the client must come first in all dealings”. Any organization involved in the business of managing client monies in an advisory investment capacity such as share-brokers, financial advisers, investment managers must adopt a series of safeguards to protect and ensure fair play in their relationship with clients. Events such as the collapse of Access Brokerage and Ross Asset Management in New Zealand, a small market by international standards, brought home to many unsuspecting investors a very painful message, that the administrative capabilities of their broker are as important as their stock picking skills, something many would never have considered or had cause to consider and worry about!

Professional behaviour can often be found wanting. In the run up to the Global Financial Crisis many household names in global securities markets were recommending stock to clients as “great opportunities” which they referred to as “lame ducks” in-house. They wittingly failed to subscribe to the market rule “Do unto others as you would have done to you”

As you would expect, as a financial adviser or financial advice provider (FAP) you must behave professionally in all dealings with a client, communicating clearly, concisely, and effectively.  When providing such services to a client you must provide:

  • only those services that you have competence, knowledge, and skill to provide
  • provide such services and perform your obligations in a timely way
  • make recommendations only in relation to financial products that have been assessed and reviewed by you

Communicating effectively, requires you to take reasonable care to ensure that the person providing the financial advice has an appropriate level of competence, knowledge, and skill to provide such advice. This is achieved by either ensuring your client is aware that you have not prepared the financial advice or assessed its suitability or accompanying the financial advice with your own financial advice in relation to the same subject matter, in which case you may have further obligations.

Fundamentally, none of what we do in financial services is that complicated. We can make it complicated if we choose to do so but that would not serve the client well and leave us open to regulatory breaches for creating something, we may sell, but cannot control in all weathers.

In 2021 we have a great opportunity to rethink how we deliver financial services and good financial outcomes for our clients. The old school rule of “them the client” and us- the professionals who always know more” leading to unfair advantage and possible abuse, must be reset.

Under new FAP rules we all have a duty to put the client first, provide products and services of the highest quality and instill a sense of market responsibility and fair play across our business model. Regulation and compliance historically always viewed as cost and drain on resources must be spun round 360 degrees and used as forward looking business improvement resource.

Published On: January 24th, 2021 / Categories: Compliance as a Service, Compliance Audit, FAP Compliance /

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