Financial advisers faced with ethical considerations can assess the situation and make a professional judgment using a four-stage process that examines what is taking place, what should be done, how that action is best communicated to clients and how to document it for future reference, an SMSF adviser has recommended.
Skeggs Goldstien director Adam Goldstien said financial advisers were required under the Financial Adviser Standards and Ethics Authority (FASEA) Code of Ethics to apply their professional judgment to ethical considerations so any advice provided is in the best interest of the client.
“I have struggled when being told to use professional judgment as I have not seen any definitions in the FASEA code or the Corporations Act, as it just does not exist,” Goldstien said, adding it was up to advisers to define professional judgment by how they acted in different situations.
“The time when your professional judgment gets tested is when you are in front of an auditor, defending a complaint, or you have a legal case.”
He said advisers could demonstrate they had used their professional judgment if they worked through four steps that were based on a Carnegie Foundation report that examined the actions of a United States military lawyer who secured Geneva Convention rights for Guantanamo Bay detainees.
As a result of those actions, and the subsequent report, legal firms and schools in the US had revised their ethics training and the four steps could also be applied to the provision of financial advice, he said.
“The first step of the model is to identify the ethical issues, so what is actually happening. Secondly, is to consider what ought to be done in a situation where a prudent person is making the decisions, thirdly, what should I say and how should I say it, and lastly, what action plans, specific dialogue and documentation are you going to put down on your files to demonstrate you have exercised professional judgment.”
He made the comments at yesterday’s SMSF Association Technical Day 2020 in a session with co-presenter BT head of financial literacy and advocacy Bryan Ashenden, who pointed out such a model was useful as it was impossible to create legislation to produce professionalism and ethical behaviour.
“You can’t legislate to state that people must act as a professional. It is about what you do and how you apply your knowledge. The issue will always be how to demonstrate the course of action taken and if you have a framework to help you, that will make a big difference,” Ashenden said.