Do financial advisers really need a code of ethics?
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| Image Credit Paul Downey |
One of the side effects of the regulatory reform that the industry has gone through is that financial adviser are now almost all members of one of the two main professional bodies. Financial advice is a constantly evolving sector where it is important that an adviser maintain his or her knowledge through continuing professional development (CPD). We have always done this but following regulatory changes we now have to have this audited and a Statement of Professional Standing (SPS) issued annually or risk de-authorisation. The most cost effective way to meet this requirement is to join a professional body and so most advisers have.
And these bodies as a condition of membership each have a code of ethics to which a member must subscribe.
Ethics play a big role in the qualifications of financial advisers, for every role that you study the first module in my experience always seems to be ethics related. Passing an exam on ethics where you are provided with detailed study material is not the same as having an ethical ethos in how you approach your business, it just means that you can regurgitate enough of the information that you have read to pass an exam.
The old financial services regulator made a move during my career to what was termed 'principle based' regulation, which in essence meant that the industry should not need prescribed rules just a set of principles to work to. It wasn't generally popular in the industry as people like defined lines of right and wrong so that they can stay 'compliant' but I quite liked the idea.
As a decent human being an adviser should understand 'right and wrong' and be able to determine in their own gut whether what they are doing is the right thing or not. As an adviser one can often encounter scenarios where what is best for the client is not always what is best for the advisory business, but as a decent human being an adviser knows that the clients interests should always come first.
Do we really need a written down code of ethics to help us set our moral compass?
In recent years the codes seem to have shortened to those that I recall when I first entered the industry. The IFS code is now down to just 7 points, and the PFS just 5 but with a page of explanatory notes for each one.
I have always operated my business on the basis;
As a decent human being an adviser should understand 'right and wrong' and be able to determine in their own gut whether what they are doing is the right thing or not. As an adviser one can often encounter scenarios where what is best for the client is not always what is best for the advisory business, but as a decent human being an adviser knows that the clients interests should always come first.
Do we really need a written down code of ethics to help us set our moral compass?
In recent years the codes seem to have shortened to those that I recall when I first entered the industry. The IFS code is now down to just 7 points, and the PFS just 5 but with a page of explanatory notes for each one.
I have always operated my business on the basis;
- If it was my mother in those circumstances would I be happy that this was the advice given?
- Don't break the law
Does writing down a code of ethics as the professional bodies have done actually increase ethical behaviour? Do advisers even read or refer to their bodies code? And if they do regularly feel the need to refer to the code is that a good thing or a worry?
Interested to know what you think of my Sunday morning pondering?
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