Everyone should have a Code of Ethics.

Medical professionals¹, builders² and lawyers³ have had them for a long time. And it’s pretty easy to understand why.

People use the services of these professionals because they don’t know how — or can’t — do the service themselves. That means, their clients are in a weaker bargaining position and must rely on the professionals to act faithfully.

That sounds awfully like the relationship between a finance professional and their client. From 2016, Australian financial advisors are required to sign — and abide by — a code of ethics to give advice.

This is a vital step for the industry since just 51% of people trust the finance industry, according to a study by CFA Institute and Edelman.

The important thing about Codes of Ethics is that they are a ‘catch all’. As opposed to law and regulation, they are not black and white — the individual must use their judgement to determine if something is ethical.

For example, perhaps regulation says I can take a $300 commission for recommending any investment. If you wanted $100,000 of investments, do I have an ethical conflict if I receive $300 in a commission? Probably not.

But what if my client was a retiree with less than $5,000 to invest? Under the law, I’d be fine — I can receive $300. But is it the right thing to do?

Demand Ethics

It’s not just financial advisors that I believe should be required to adhere to a Code. I believe a Code of Ethics should be mandatory for every finance company and individual. Whether you are selling car insurance, a mortgage or investing billions of dollars for a multinational funds management business — why not have a Code of Ethics?

The next step is enforcing the Code. Companies can take it upon themselves. Have a three-strike system. Put a Hippocratic oath in every piece of mortgage advice, investment research or personal advice. Or just point to the Oath, so users can view it for themselves and call out professionals for breaches.

The BFO, Banking + Finance Oath, provides a very simple but powerful oath for all finance professionals. All our staff have taken it. Here’s a video of what the oath means:

Summary

A code of ethics can be a powerful tool. It means professionals can’t find wiggle room in the law to take advantage of clients for their own interests. But it also means they can not be perceived to be taking advantage of clients. Ultimately, that’s in the best interests of everyone in the long run.

 

Sources

  1. https://ama.com.au/position-statement/ama-code-ethics-2004-editorially-revised-2006
  2. https://www.mbansw.asn.au/uploadedFiles/Content/About/MBA_Code_of_Ethics.pdf
  3. http://lsbc.vic.gov.au/?page_id=248
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