Topic 5 - Ethics and Professionalism in Fianncial Services

Question 1

The study of ethics is based on 3 core concepts

Answer 1

The concept of right and wrong
The other
Actions / Behaviour

Question 2

The concept of right or wrong

Answer 2

Guide people interlock issues

Provides reference

Question 3

The Other

Answer 3

Concern of other peoples interests, community interest and the common good
Ethical means thinking of someone other than yourself
Obligation of professional groups

Question 4

Actions / behaviour

Answer 4

Ethics study of human behaviour
Knowing and doing what is right
Behavioural decisions and consequences of ones behaviour are interelated

Question 5

Moral Reasoning

Answer 5

Process by determining right vs wrong using logic

Question 6

Threats to Ethical Decision Making

Answer 6

Self - Interest
Incompetance
Conflict of Interest

Question 7

Self Interest

Answer 7

Concern for only getting what you want or need

Question 8

Incompetance

Answer 8

Low ethical sensitivity lack of ability to identify and process ethical problems

Question 9

Conflict of Interest

Answer 9

Difference between private interests and responsibilties of those in a position of trust

Question 10

Behavioural Ethics

Answer 10

Is a study of why people make the ethical and non-ethical decisions that they do

Question 11

Conformity Bias

Answer 11

The want to fit in. Even though you feel uncomfortable
To go with the crowd
Is the pressure to conform to social norms
Group Think

Question 12

Role Morality

Answer 12

Tendency to have different moral standard for different roles we play in society
Acting in ways you feel as unethical if you are acting on your behalf
eg - doing things for your employer even though you do not believe it to be morally correct

Question 13

Overconfidence Bias

Answer 13

Ability to act more confident in our ability to act ethically
Believing you act more ethically than you actually do

Question 14

Why does ethics matter

Answer 14

Ethics helps build confidence and trust

Question 15

Ethical Decision Making

Answer 15

Is a systematic method of obtaining a responsible and ethical decision, taking into account general and ethical beliefs of the individual

‘The process of identifying, generating alternatives, and choosing among them so that alternatives selected maximise the most important ethical values while achieving the intended goal’

Question 16

Limitations to Ethical Decision Making

Answer 16

Common Sense Approach
Satsificing
Treating ethical dilemma as a problem
Ethical Sensitivity

Question 17

Common Sense Approach

Answer 17

Decisions made on personal insight
Most widely used approach
Based on individuals background
Weight infomation based on pre-existing attitudes

Question 18

Satsificing

Answer 18

Makring adequate / satisficing decisions
Easy to understand decisions
Reduces complexity of decision making

Question 19

Treating ethical dilemma as a problem

Answer 19

Irresolvable due to equally compelling arguements for each alternative
Decision between

Question 20

Ethics

Answer 20

Represents fundamental principles that guide right from wrong

Question 21

Ethcial Decisions

Answer 21

What should be done to achieve a deisired objective consistent and supported with principles of good conduct

Question 22

Values

Answer 22

Things we regard as having importance / worth, often refered to as principles or beliefs.

Question 23

Ethical Sensitivity

Answer 23

Ability to recognise the moral dimensions of a problem

Question 24

Values that are considered characteristics of an ethical person

Answer 24

Integrity
Promise Keeping
Loyalty
Fairness
Caring
Excellence
Respect
Accountability

Question 25

Ethics - Personal

Answer 25

Values individuals rely upon to make ethical decisions and behave accordingly

Question 26

Ethics - Professional

Answer 26

The discharge of a duty of professional care consistent with the norms of the profession in which the member practices

Question 27

Public Interest

Answer 27

Notion of providing a selfless service to the community

Question 28

Ethics and the law

Answer 28

IS the simplemest form of ethical decision making

lawful decisions governed by legally binding rules

Question 29

3 advantages of using law to guide ethical behaviour

Answer 29

Provides defined set of rules
Embodies many of societys common beliefs
Consists of enforeable rules

Question 30

Ethics and Codes of Conduct

Answer 30

Professional ethics are not legally binding
Based on professionalism
Standards of expected behavior
Attempt to deter unethical behaviour

Question 31

Define ethics

Answer 31

Ethics represents the fundamental principles that guide right from wrong in human conduct

Question 32

describe the elements that underlie the definition of ethics

Answer 32

At its most basic, ethics addresses the question of how we live our lives, how we relate to members of our community and how our actions affect others. How we live and relate to others is underpinned by ethical decision-making and behaviour, and managing the balance between right and wrong. The labels of ‘good’ and ‘bad’ will often over simplify what could be complex and dynamic issues and situations. To this end, ethics refers to well-based standards of conduct that prescribe what people ought to do and how they should behave, with an emphasis on doing good and avoiding harm to others.

Question 33

How does the study of behavioural ethics differ from moral reasoning and descriptive ethics?

Answer 33

Behavioral ethics is distinguished from the concept of moral reasoning by arguing that ethical behavior is primarily driven by a diverse set of intuitive processes over which individuals have little conscious control.

Question 34

Moral Reasoning

Answer 34

the process in which individuals try to determine the difference between what is right and what is wrong by using logic. People make this decision by reasoning the morality of their potential actions, and through weighing their actions against potential consequences.

Question 35

What are some of the factors identified by behavioural ethics that may impede ethical decision making?

Answer 35

people are not entirely rational when making ethical decisions. Most ethical choices are made intuitively, by feeling, not after carefully analysing a situation.

Usually, people who make unethical decisions are unconsciously influenced by internal biases, like the self-serving bias, by outside pressures, like the pressure to conform, and by situational factors, such as incentives, that they do not even notice.

Question 36

Decision-making governed by legally binding rules provides three advantages:

Answer 36

• law provides a provides an ethical minimum
• law embodies many of society’s common beliefs and values
• the law consists of enforceable rules

Question 37

Discuss the ethics of the following phrase: ‘if it’s legal it’s okay’.

Answer 37

However, lawful decisions are not always ethical. Laws may be outdated or silent on ethical issues, and thus out of line with contemporary values of society. Laws best to be considered as minimum acceptable standards of decision-making, and that occasionally you must go beyond the law to arrive at an ethical decision

Question 38

‘Satisficing’

Answer 38

involves making ‘adequate’ or ‘satisfactory’ decisions. Instead of rationally searching for the ‘best’ alternative, decision-makers satisfice.

Question 39

‘Dilemma resolution’

Answer 39

recognises that ethical scenarios often do not have a single ‘right’ answer. Ethical dilemmas are recognisable by their irresolvable nature due to equally compelling arguments for each alternative.

Question 40

Define professional ethics

Answer 40

Professional ethics is the discharge of a duty of professional care consistent with the norms of the profession in which the member practises.

These written codes provide rules of conduct and standards of behaviour based on the principles of professional ethics, including objectivity, integrity, confidentiality, technical competence, due care and the public interest.

Question 41

Define what it means to serve the public interest.

Answer 41

refers to the interests of the public-at-large in terms of what should be in the general interest of a civic-society if a rational, objective, long-term assessment of a situation is taken.

Question 42

Ethical decision-making

Answer 42

process of identifying a problem, generating alternatives, and choosing among them so that alternatives selected maximise the most important ethical values while achieving the intended goal’

Question 43

Why is it that decisions in business and professional settings are not always ethical?

Answer 43

they have a fiduciary obligation to direct stakeholders such as employers and clients, but a larger responsibility to the public. A conflict of interest between these stakeholder groups arises when the interests of all stakeholders are not aligned.

Question 44

What is the primary purpose of a code of ethics?

Answer 44

the primary purpose of a code of professional conduct is to deter and prevent questionable behaviour of practitioners that may bring harm to their clients and the public.

Question 45

The code of professional conduct

Answer 45

is a set of rules designed to induce a professional attitude and behaviour consistent with high ethical standards accepting of the public

Question 46

What does it mean when we talk about the code of ethics as the benchmark for professional behaviour?

Answer 46

The appropriateness of a member’s ethical or professional conduct is judged by benchmarking that member’s actual conduct against the expected behaviours derived from the principles of professional conduct.

Question 47

Define ‘conflict of interest’,

Answer 47

Conflicts of interest occur when the interest of the professional conflicts with the interests of another party .

Question 48

The following are considered essential elements in the definition of ‘conflicts of interest’

Answer 48

• Fiduciary relationship: the professional has a primary duty to act in the best interests of the other party over their own interests, usually the client.
• Proper exercise of duty: conflict of interests interferes with the professional’s ability to discharge their fiduciary duties properly.
• Self-interest: conflicts of interest normally arise from the professional’s desire to promote his or her own interest.
• Real or imaginary conflict of interest: whether the conflicts of interest are real or imaginary, the outcomes and hindrance on performance are the same.
• Actual or potential harm: actual harm is not a necessary condition of a conflict of risk, only the potential for harm.

Question 49

potential problems arising from conflict of interest situations.

Answer 49

professionals facing a conflict are likely to ignore their fiduciary duties and favour their self-interest ahead of the interests they are obligated to serve.

Question 50

There are three ways in which an professional may avoid a conflict of interest:

Answer 50

a. An professional may remove themselves from the conflict and allow someone else to assume their professional responsibilities.
b. An professional may resign from the position or relationship that is creating the conflict but such an action may bring financial hardship to the professional.
c. An professional may disclose the conflict to all interested parties and allow interested parties to judge for themselves the likelihood of damage, if any, and by giving consent, the interested parties agree to bear the risk of the adverse effects from the conflict of interest.

Question 51

What is a commission?

Answer 51

Commissions (cash and non-cash items) are generated for recommending or referring a product or service, usually for the purchase or sale of a financial product supplied by a third party.

Question 52

How may a commission create a conflict of interest?

Answer 52

Accepting such commissions may give rise to a self-interest threat because sound judgment may be influenced by dependency on the commission from the product supplier. That is, a commission bias arises when advisers favour the selling of one product over another in order to earn a higher commission.
There is a general prohibition on financial advisers receiving or accepting ‘conflicted remuneration’ in relation to a financial product

Question 53

Section 923A of the Corporations Act (2001) prohibits a person from using certain restricted words and expressions in relation to a financial services business or in the provision of a financial service.
a. Identify three restricted words for the purpose of s923A.

Answer 53

‘independent’, ‘impartial’, and ‘unbiased’,

Use of those words as part of another word or expression is also restricted: s923A(5)(b).

Similarly, a financial service provider cannot use terms such as ‘independently owned’, ‘non-aligned’, and ‘non-institutionally owned’ if it does not satisfy the conditions in s923A

Question 54

Section 923A of the Corporations Act (2001) prohibits a person from using certain restricted words and expressions in relation to a financial services business or in the provision of a financial service.
Under what circumstances may an individual use the restricted words outlined in s923A?

Answer 54

• the person does not receive:
– commissions;
– forms of remuneration calculated on the basis of the volume of business placed
– other gifts or benefits;
• the person operates free from direct or indirect restrictions relating to the financial products in respect of which they provide financial services
• the person is free from conflicts of interest that might arise from any relationships with product issuers