Ethical Financial Advice

Terry Pinnell
Ethical Investment Advisers

In the Banking Royal Commission Ken Henry of the NAB said that the capitalism is about “businesses have no responsibility other than to maximise profits to shareholders.’’

Over the years when I have talked with Trustees of supers and fund managers they have all told me that boards should be focused on the maximisation of profits for shareholders.

In the Banking Royal Commission it appears that Rowena Orr is suggesting to the banks that profit shouldn’t come at the expense of mistreated customers. The argument probably would run that by ripping off customers the short-term interests of shareholders are considered, but possibly not in the long-term interests.

But it appears that the banks did not put their customers before profits and certainly not before bonuses. For the banks customers are seen cash cows to pay shareholder profits, rather than the customer being the focus of good products and service.
 

Terry Pinnell
Ethical Investment Advisers

In the Banking Royal Commission Ken Henry of the NAB said that the capitalism is about “businesses have no responsibility other than to maximise profits to shareholders.’’

Over the years when I have talked with Trustees of supers and fund managers they have all told me that boards should be focused on the maximisation of profits for shareholders.

In the Banking Royal Commission it appears that Rowena Orr is suggesting to the banks that profit shouldn’t come at the expense of mistreated customers. The argument probably would run that by ripping off customers the short-term interests of shareholders are considered, but possibly not in the long-term interests.

But it appears that the banks did not put their customers before profits and certainly not before bonuses. For the banks customers are seen cash cows to pay shareholder profits, rather than the customer being the focus of good products and service. 

In financial planning there is what is called a Safe Harbour Checklist and it is obvious to all who have watched the Banks and AMP answer questions that the Checklist was never used. The checklist says that the adviser should:

1. Identify the objectives, financial situation and needs of the client that were disclosed by the client through instructions. 
2. Identify the subject matter sought by the client (whether explicitly or implicitly); 
3. Identify the objectives, financial situation and needs of the client (reasonably  considered relevant to the advice sought) on that subject matter (ie client’s relevant circumstances); 
4. If reasonably apparent information relating to the client’s relevant circumstances is incomplete or inaccurate, make reasonable inquiries to obtain complete and accurate information. 
5. Assess whether you as the advice provider has the expertise required to provide the client with advice on the subject matter sought and, if not, decline to provide the advice. 
6. Reasonably consider recommending a financial product by conducting a reasonable investigation into the financial products that might achieve the objectives and meet the clients needs reasonably considered relevant to advice subject matter; and assess the information gathered in the investigation.
7. Base all judgements in advising the client on the client’s relevant circumstances.
8. Take any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.

The Checklist is in Section 961B(2) of the Corporations Act and the advice provider should be able to prove that the checklist has been followed (this is also set out in Section 175 of the ASIC regulations.) 

As an ethical adviser you would also add to the checklist the clients ethics and values, consider your conflicts of interest and the transparency and fairness of your fee disclosure.

Client’s ethics and values are often overlooked by main stream advisers as unnecessary to give good advice, but values play a huge part of most peoples’ lives and to integrate their investment choices with client values seems to me to be mandatory.

The discussion that is brought up when talking about values and ethics gives the adviser a much deeper idea of their client and what makes them tick. It also helps to cement the client adviser relationship, because who wants to invest with an adviser who has a completely different set of values

In our practice we try to run what I would call social capitalism, where to paraphrase Adam Smith “That profit is a by product of customer satisfaction.”