November 26, 2020
With an ageing population and increased longevity, it is becoming increasingly difficult for the government to provide the same level of support to retirees. The responsibility of financially preparing for retirement is gradually shifting from the government to each individual and, given the complexity of legislation and financial products available on the market, more and more people are reaching out to financial planners for assistance. Unfortunately, as revealed in the Royal Commission into Banking, Superannuation and Finance Services industry, clients have been let down by the behaviour of financial planners – the very professionals they put their trust in.
Financial planners did not seem to realise how important trust is from the client’s perspective¹ and that clients rank ethical skills above the technical skills². Clients were being recommended products based on their advisors’ interests without a reasonable foundation for advice being given and ignoring the fiduciary requirements for advisers to always act in the best interest of their clients³. Interestingly, research shows that planners who have been practicing for over ten years have shown lower ethical orientation score⁴. This disturbing information indicates that ethical standards of long-term financial planners potentially deteriorate due to factors like organisational culture, remuneration structure and alliance with financial product providers who require the adviser to sell their products.
Essentially caught between serving the interests of financial institutions they work for and the client seeking advice, advisers seem to succumb to the external pressures. Considering the impact of the various external factors on ethical standards, independent financial businesses, where remuneration is not linked to the volume of products sold, should provide the best environment where financial planners prioritise the interest of client over their own.
Aspire Financial Consulting was established as an independent advisory business, applying a fee-for-service approach – where there is no room for kickbacks or commissions. If you are considering seeking financial advice in the near future, please consider our services.
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¹Hunt, K., Brimble, M., & Freudenberg, B. (2011). Determinants of Client-Professional Relationship Quality in the Financial Planning Setting. Australasian Accounting, 5(2), 69-99. doi:10.2139/ssrn.1867907
²Cull, M., & Bowyer, D. (2017). Ethics in Financial Planning: Myth, Fact or Rhetoric Paradox? e – Journal of Social & Behavioural Research in Business, 8(2), 56-69.
³Ahmed, A., & Richards, D. (2018). What are the ethical challenges in the Financial Planning Practice? Issues and current patterns in unethical behaviour. Report to the Financial Planning Educational Council Academic Research Grants 2017 Research Grant Recipient Research Year: 2018.
⁴Bigel, K. (1998). The Ethical Orientation of Financial Planners Who Are Engaged in Investment Activities: A Comparison of United States Practitioners Based on Professionalization and Compensation Sources. Journal of Business Ethics, 28(4), 323-337. doi:10.1023/A:1006258813653