Standard 3 in perspective: look to other professions


Financial planners have been trapped in a trap-22. The desire for the profession to be recognized goes hand in hand with status and fees, but it also requires the light-speed leap to conflict-free professionalism in accordance with the current version of Standard 3.

The profession has not had much of a chance to evolve the collective understanding of conflict of interest obligations in the context of other professions. Given the time to really understand what professionals do in the broader context of other professions, the financial advisory profession might be very happy with Standard 3 of the FASEA Code of Ethics, which is currently underway. revision.

If the profession of financial advice had spent years comparing itself to other professions, one would have realized that while the obligations of conflict of interest advisers are certainly more onerous than those assumed by physicians and accountants, they are far greater. more lenient than those assumed by actuaries. While many in the profession feel isolated, counselors actually fall somewhere in the middle.

The current wording of Standard 3 is short and general, and requires advisers not to “refer, act or advise” in the event of a conflict of interest. This means:

  1. Financial advisers are prohibited from “managing” a conflict of interest through disclosure and informed consent
  2. This only concerns “real” conflicts of interest (and not “perceived” or “potential” conflicts of interest)

The closest professional cousins ​​of financial advisers are general practitioners. Indeed, it is the only other profession that offers most of its value through strategic advice (eg, ‘rest and come back in two weeks’), while also providing specific product advice. , in order to implement strategic advice (for example, prescriptions or referrals to specialists). Health and wealth have always gone hand in hand.

When we compare the obligations of financial advisers to those of the medical profession, advisers have very high obligations. The Australian Medical Association Code only requires healthcare professionals to ensure that any conflict of interest does not compromise, or be perceived to compromise, their professional judgment and their ability to act in the best interests of patients. . Physicians are also required to consider that perceived conflicts of interest could reduce community confidence in the profession. While physicians are able to serve clients when there is a conflict of interest, they are required to manage the conflict through disclosure, but only in circumstances where they believe it could affect their professional judgment. .

Whether or not the conflict of interest may or may not have a negative impact on their professional medical judgment is a matter for the medical professional himself, which seems to raise a whole new conflict of interest. But don’t go there yet.

Financial planners, on the other hand, are not able to operate in a scenario where a conflict of interest exists, regardless of the magnitude of the conflict or the management approach. In this regard, financial advisers are held to a much higher standard than healthcare professionals.

Likewise, when providing financial advice, accountants are required to manage conflicts of interest and tell their clients if – and only if – the conflict of interest affects their ability to act in their best interests. Again, it is up to the professional to decide whether a conflict of interest could affect their ability to serve their client.

Physicians began to be licensed in Australia in 1842 and accountants in 1886. Clearly these professions have had more time to iron out problems with structures giving rise to conflicts of interest and to manage community expectations in matters of conflict of interest. ‘independence.

At the other end of the conflict of interest spectrum are actuaries. The Actuaries Institute’s Code of Conduct requires their members to take immediate action (including notifying the client of the conflict of interest and not providing the service) when appropriate. potential Where real a conflict of interest arises. Actuaries have a responsibility to ensure that their professional judgment and their ability to provide objective advice is not compromised. In addition, actuaries are prohibited from even having the impression of being compromised by prejudices, conflicts of interest or the influence of others.

Their code uses 223 words to explain their conflict of interest obligations. FASEA Standard 3 uses 20. The Actuaries’ Code is much stricter than the current Standard 3, which appears relatively general by comparison.

The degree of stringency of conflict of interest obligations appears to reflect a combination of the actual service provided (e.g. actuaries provide calculations – and mathematics should be ‘pure’) and existing community expectations (e.g. GPs receive many benefits from pharmaceutical companies yet the community sees no impact on counseling).

Evolution into a profession means rejecting “market” perspectives and replacing them with “public interest” perspectives. Ethical status is the key to professionalism, and higher ethical claims are directly linked to Standard 3.

When we consider all of the other professions, it becomes clearer that not only is Standard 3 in its current form not as strict as it looks (relatively speaking), but also that there are strong conflict obligations. interests help achieve the status of a trade.

* Katherine Hunt is a lecturer in ethics and financial advice at Griffith University

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