Topic 5 - Ethics and Professionalism in Fianncial Services Flashcards
The study of ethics is based on 3 core concepts
The concept of right and wrong
The other
Actions / Behaviour
The concept of right or wrong
Guide people interlock issues
Provides reference
The Other
Concern of other peoples interests, community interest and the common good
Ethical means thinking of someone other than yourself
Obligation of professional groups
Actions / behaviour
Ethics study of human behaviour
Knowing and doing what is right
Behavioural decisions and consequences of ones behaviour are interelated
Moral Reasoning
Process by determining right vs wrong using logic
Threats to Ethical Decision Making
Self - Interest
Incompetance
Conflict of Interest
Self Interest
Concern for only getting what you want or need
Incompetance
Low ethical sensitivity lack of ability to identify and process ethical problems
Conflict of Interest
Difference between private interests and responsibilties of those in a position of trust
Behavioural Ethics
Is a study of why people make the ethical and non-ethical decisions that they do
Conformity Bias
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
Role Morality
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
Overconfidence Bias
Ability to act more confident in our ability to act ethically
Believing you act more ethically than you actually do
Why does ethics matter
Ethics helps build confidence and trust
Ethical Decision Making
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’
Limitations to Ethical Decision Making
Common Sense Approach
Satsificing
Treating ethical dilemma as a problem
Ethical Sensitivity
Common Sense Approach
Decisions made on personal insight
Most widely used approach
Based on individuals background
Weight infomation based on pre-existing attitudes
Satsificing
Makring adequate / satisficing decisions
Easy to understand decisions
Reduces complexity of decision making
Treating ethical dilemma as a problem
Irresolvable due to equally compelling arguements for each alternative
Decision between
Ethics
Represents fundamental principles that guide right from wrong
Ethcial Decisions
What should be done to achieve a deisired objective consistent and supported with principles of good conduct
Values
Things we regard as having importance / worth, often refered to as principles or beliefs.
Ethical Sensitivity
Ability to recognise the moral dimensions of a problem
Values that are considered characteristics of an ethical person
Integrity Promise Keeping Loyalty Fairness Caring Excellence Respect Accountability
Ethics - Personal
Values individuals rely upon to make ethical decisions and behave accordingly
Ethics - Professional
The discharge of a duty of professional care consistent with the norms of the profession in which the member practices
Public Interest
Notion of providing a selfless service to the community
Ethics and the law
IS the simplemest form of ethical decision making
lawful decisions governed by legally binding rules
3 advantages of using law to guide ethical behaviour
Provides defined set of rules
Embodies many of societys common beliefs
Consists of enforeable rules
Ethics and Codes of Conduct
Professional ethics are not legally binding
Based on professionalism
Standards of expected behavior
Attempt to deter unethical behaviour
Define ethics
Ethics represents the fundamental principles that guide right from wrong in human conduct
describe the elements that underlie the definition of ethics
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.
How does the study of behavioural ethics differ from moral reasoning and descriptive ethics?
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.
Moral Reasoning
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.
What are some of the factors identified by behavioural ethics that may impede ethical decision making?
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.
Decision-making governed by legally binding rules provides three advantages:
- law provides a provides an ethical minimum
- law embodies many of society’s common beliefs and values
- the law consists of enforceable rules
Discuss the ethics of the following phrase: ‘if it’s legal it’s okay’.
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
‘Satisficing’
involves making ‘adequate’ or ‘satisfactory’ decisions. Instead of rationally searching for the ‘best’ alternative, decision-makers satisfice.
‘Dilemma resolution’
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.
Define professional ethics
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.
Define what it means to serve the public interest.
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.
Ethical decision-making
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’
Why is it that decisions in business and professional settings are not always ethical?
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.
What is the primary purpose of a code of ethics?
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.
The code of professional conduct
is a set of rules designed to induce a professional attitude and behaviour consistent with high ethical standards accepting of the public
What does it mean when we talk about the code of ethics as the benchmark for professional behaviour?
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.
Define ‘conflict of interest’,
Conflicts of interest occur when the interest of the professional conflicts with the interests of another party .
The following are considered essential elements in the definition of ‘conflicts of interest’
- 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.
potential problems arising from conflict of interest situations.
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.
There are three ways in which an professional may avoid a conflict of interest:
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.
What is a commission?
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.
How may a commission create a conflict of interest?
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
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.
‘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
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?
• 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
