CPD: Ethics and the advice practice

When last published, the FAAA’s Value of Advice Index^[1] saw trust in financial advice at an all-time high, which reinforces the importance of ethical practice.  This article, proudly sponsored by GSFM, explores the enduring importance of a strong ethical focus in the advice practice.

With trust in financial advice reaching an all-time high, the spotlight is firmly on the role ethics plays in shaping the profession’s future. For financial advisers, this growing trust represents both a significant achievement and a critical responsibility. Ethical practice isn’t just a regulatory requirement; it’s the foundation of lasting client relationships and professional credibility.

When the Code of Ethics (Code) was introduced, it came with a range of expectations from ASIC. Importantly, ASIC expected Australian Financial Services licensees to take ‘reasonable steps’ to ensure that their authorised representatives comply with the Code all times. To illustrate, licensees must:

• Ensure their authorised representatives are aware of the need for compliance with the Code on an ongoing basis
• Provide training and/or guidance to authorised representatives about the types of conduct that is consistent and inconsistent with the Code
• Facilitate an individual authorised representative’s ability to raise concerns with their AFS licensee about how the licensee’s systems and controls may impede their ability to comply with the Code, and acting on those concerns where appropriate
• Consider whether authorised representatives are complying with the code as part of their regular, ongoing monitoring of adviser conduct
• Make any necessary changes to systems and processes to ensure the compliance of each authorised representative with the Code and other regulatory requirements.

ASIC may suspend or cancel an AFS licence if it is no longer satisfied that the licensee or the licensee’s representatives are of good fame or character.

The Code of Ethics addresses five core values: trustworthiness, competence, honesty, fairness and diligence. It requires that financial advisers must, at all times and in all cases, act in a manner demonstrably consistent with Code’s twelve ethical standards, summarised in figure one. These standards are regulated and monitored by ASIC’s approved compliance schemes.

The importance of an ethics-centric practice

Ethics play a crucial role in running a successful financial advice practice. Ethics form the foundation of trust between advisers and clients, trust that is essential when it comes to managing people’s financial futures.

Ethical conduct ensures that advice is client-focused, transparent and in compliance with legal and professional standards, including the code. It reduces the risk of misconduct and regulatory breaches. A strong ethical framework supports sound decision-making and reinforces both your personal reputation and that of your practice. Importantly, it fosters a positive internal culture where staff feel accountable and aligned with shared values. Ultimately, ethics are not just about avoiding wrongdoing; they are integral to building a sustainable, respected and client-centred business.

An ethics-centric practice will benefit from:

1. Client trust: Ethical behaviour builds trust. Clients are more likely to trust a financial adviser who demonstrates a commitment to ethical conduct. Trust is fundamental in establishing and maintaining long-term client relationships. It’s also more likely to result in referrals that can help build your business.

Each of the Code’s standards will help you build and strengthen trust between yourself and your clients. A failure in any one area can erode trust and derail your relationship.

2. Integrity and professionalism: An adherence to ethical practices upholds the integrity of the financial advice profession. It demonstrates both professionalism and a dedication to acting in the best interests of clients. This, in turn, enhances the credibility and reputation of the individual financial adviser, his or her practice and the industry as a whole.

While integrity underpins several of the Code’s standards, it is a specific requirement of standard two, which requires advisers to always act with integrity. Acting in a way that supports the professionalism of the industry is a requirement of standard twelve.

3. Client’s best interests: Financial advisers have a fiduciary responsibility to always act in the best interests of their clients. Ethical behaviour ensures that financial advisers prioritise their clients’ needs and goals over their own and avoid conflicts of interest that could compromise the quality of advice and outcomes for clients.

Acting in each client’s best interests is aligned with several standards, notably standards two and five which specifically reference client best interests. Other standards also align with the need to act in a client’s best interests. This includes the requirement to obey the law – section 691B of the Corporations Act requires advisers to always act in a client’s best interests (standard one). Client interests are also implied in the requirement to avoid conflicts of interest (standard three), acting with informed consent (standard four) considering the long-term effects of advice (standard six).

4. Legal and compliance: Ethical behaviour aligns with the legal requirements and regulations governing the Australian financial advice industry. Financial advisers who act ethically are more likely to comply with legal standards and have a reduced risk of encountering legal issues or regulatory scrutiny. Unethical behaviour can result in legal consequences, damaging both your career and the practice’s reputation.

Standard one of the Code requires that advisers act in accordance with all applicable laws (including the Code).

5. Risk management: Ethical decision-making contributes to effective risk management. By considering all advice through an ethical lens, advisers can identify and mitigate potential risks, protecting both clients and the reputation of the advice practice.

This also comes back to standard two, the requirement to act with integrity; this is a quality that enables advisers to identify and manage risks.

6. Long-term success: Ethical behaviour will contribute to the long-term success of your practice. Clients who feel well-served and that you have always acted in their best interests are more likely to remain loyal to you and refer their family and friends, contributing to the ongoing growth and success of your business.

7. Industry reputation: Ethical conduct by financial advisers collectively enhances the reputation of the entire financial services industry. Unethical practices can lead to negative perceptions and erode public trust, affecting not only individual advisers but the industry.

The reputational damage possible to the industry is the subject of standard twelve and its requirement that individually and in cooperation with peers, advisers must uphold and promote the ethical standards of the profession.

8. Personal satisfaction: Knowing you are making a positive impact on your clients’ lives, acting in their best interests and adhering to a strong ethical framework is likely to enhance the sense of purpose and professional satisfaction in your work.

Creating an ethics centric practice

Adopting an ethics-centred approach in financial advisory practices must go beyond the adviser alone. This mindset should permeate the entire organisation: from the receptionist who greets clients and manages sensitive data, to the adviser developing tailored financial strategies. It also includes paraplanners who implement investment decisions, practice managers who oversee staff training, and administrators responsible for processing documentation. As noted previously, it is incumbent upon licensees to ensure their representatives are abiding by their regulatory responsibilities, including compliance with the Code.

Every team member should possess both a theoretical and practical understanding of how the Code impacts their role. Each must carry out their duties in a way that upholds ethical standards and supports advisers and licensees in meeting their obligations. Ultimately, however, it is the adviser and licensee who are held accountable and face potential enforcement should a breach occur.

To establish an ethics-centric practice and minimise the risk of violating the Code, various strategies can be implemented.

1. Embed ethics into organisational culture

Embedding ethics into your organisational culture fosters trust between employees as well as employees and clients, enhances accountability, and ensures consistent behaviour across all levels of your advice practice. It helps prevent misconduct, supports compliance and ultimately, strengthens your firm’s long-term reputation and success. Strategies to do this include:

a) Define core values that reflect ethical principles such as integrity, transparency and client-first thinking.

b) Leadership by example: regardless of your position in a practice, it’s important to set a good example. For those who are senior in the practice, it’s more important to demonstrate those behaviours that are acceptable and highlight those which are not. Senior advisers and personnel will set the tone for ethics in the practice; as such, they need to embody the Code in all they say and do.

c) Create a mission statement that highlights ethical commitments.

d) Establish a practice-wide code of conduct, one which encapsulates your firm’s values as well as the Code of Ethics, your team should have a clear understanding of their role and the expectations that go with it.

Any code of conduct should set clear expectations about employee behaviour when performing their role and, in an ethics-centric practice, how each of the twelve standards may specifically intersect their role. This should be a concise and accessible document that is distributed to all staff members, and which is readily available for reference.

2. Integrate ethics into recruitment and onboarding

A benefit of having strong core values is the ability to hire staff aligned with your values. For best success, you can incorporate questions and scenarios into your interview process to assess ethical awareness and values fit during the recruitment process. It’s also important to include ethical training when onboarding new staff to set clear expectations from day one.

3. Set key performance indicators (KPIs)

Appropriate KPIs in an ethics-centred financial advice practice ensure that performance is measured not just by financial outcomes, but also by ethical behaviour and client-centric actions. They align staff incentives with the organisation’s values and promote integrity, compliance and long-term client trust.

Although a values-driven KPI may be more challenging to quantify than one with specific and measurable outcomes, it will highlight the importance of values and ethics in your practice. The implementation of accountability measures will ensure that all staff members integrate ethical considerations into their daily responsibilities. Further, to recognise and reward ethical behaviour will reinforce a positive ethical culture.

4. Communication

It’s important to establish clear communication channels within your practice to convey the importance of ethics.

Hold regular team meetings to discuss ethical challenges and reflections, and regularly discuss ethical considerations during team meetings, emphasising the relevance of the Code to each staff member’s role. A collaborative environment where colleagues can monitor and support each other in upholding ethical standards is important to create and maintain an ethical practice. Encourage open discussions about ethical dilemmas and provide guidance on navigating challenging situations.

It’s also important to communicate clearly, openly and honestly with your clients. In the initial meetings, don’t simply tell them what you will do for them, but detail how you will work with them to achieve their objectives. Establish ongoing channels of communication and explain how you will communicate with them. It’s important to detail the method and frequency.

Remember that it’s important not to make promises that you know you cannot (or may not be able to) keep. As well as potentially being a breach of the Code, it will reflect badly on the practice.

5. Checklist

Develop a checklist that can be used to safeguard compliance with the Code. The questions in the checklist should be tailored to each role in the practice and include those relevant to dealing with prospective clients, new clients and existing clients.

6. Workplace training

This is essential to ensure all staff understand both the practice’s values and the obligations of the Code. Using workshops to promote ethics in your workplace will reinforce your business’s standards of conduct and clarify behaviours and practices that do and don’t work within your own code of conduct – and within the Code.

Importantly, ethics training should not be a once off.

Ethics training could be incorporated as part of a regular team meeting; for example, by using a variety of case studies that address common ethical dilemmas across the financial planning industry. It can be used to emphasise your firm’s commitment to continuous improvement in ethical practices. It also provides an opportunity to seek feedback from staff as to how the practice can better support ethical decision-making and incorporate this input into ongoing improvements.

Ideally, this workplace training should be practical as far as possible and teach team members to make good decisions that are compliant with the law and consistent with your practice’s values.

7. Feedback loop

Encourage staff to provide honest feedback about processes, conversations and client interactions. This way, you are better placed to ensure you’re aware of issues that may arise that could potentially compromise your business. A feedback loop can help you identify gaps in relation to processes and procedures, and where a checklist or workplace training may be useful tools.

8. Regular audit

These or similar strategies may have already been implemented in your practice. If so, it’s important to review the effectiveness of each. What’s working well and what’s not? If you can identify gaps in processes that may lead to a breach of the Code, it’s better to identify them ahead of time. A breach of ethics is also a breach of client trust.

Case studies

The following case studies are loosely based on ASIC’s enforcement activities or AFCA cases; however, names and other details have been changed for privacy reasons.

Case study one – dishonesty

Former financial adviser Robert was sentenced in February 2025 for engaging in dishonest conduct while carrying on a financial services business, contrary to s1041G of the Corporations Act 2001 (Cth). Between June 2019 and December 2019, Robert dishonestly obtained $125,000 from 12 clients’ superannuation accounts.

Robert was convicted and sentenced to three years imprisonment, suspended upon the condition that he enter a recognisance that he will comply with conditions to be of good behaviour for five years, pay a pecuniary penalty of $20,000 and make reparation to the trustee of the clients’ superannuation fund for its reimbursement of Robert’s clients for their losses.

An ASIC investigation identified that Robert submitted ad hoc adviser fee forms for 14 clients which purported to authorise withdrawals from their superannuation accounts. The regulator found that Robert’s actions betrayed the trust of his clients and caused them financial harm.

His clients had no knowledge of the ad hoc fees, did not sign the forms and did not consent to the withdrawal of the fees from their accounts. ASIC’s investigation showed that Robert had created fictitious client file notes allegedly detailing conversations that purported to record some of his clients’ consent to his withdrawal of these ad hoc fees. At the same time, Robert charged these clients ongoing monthly fees.

ASIC noted that instead of showing the honesty and integrity required of someone who works in the financial services sector.

By acting dishonestly and stealing from his clients, Robert potentially breached the following standards in the Code:

Case study two – inappropriate advice

Kate and Dominic obtained advice from Julie, an authorised representative of the financial advisory practice ACME Advisors. The couple had inherited $165,000 from Kate’s grandparents, and they wished to invest $150,000 of it. Because Kate and Dominic were conservative investors, Julie recommended investing the total amount into a bond fund. However, instead the money was invested into a high yield credit fund.

Kate and Dominic made a complaint that the investment was inappropriate. It did not match their ‘balanced’ risk profile and Julie’s advice did not include appropriate diversification for their overall strategy.

Although ACME Advisors claimed the advice was appropriate given the information available to the adviser at the time, AFCA’s findings concluded that:

• The investment strategy was totally weighted towards a single managed investment scheme and lacked critical diversification
• The managed investment scheme was not an appropriate investment to recommend to the complainants because of its high-risk nature
• Risk profiling found the complainants to be ‘balanced’ investors
• While it may have been appropriate for a balanced, growth or high growth investor to have some exposure to the managed investment scheme, the complainants entirely invested in this single financial product with minimal basis for this being appropriate for their needs and objectives
• There was no discussion about other investment options to deliver a diversified portfolio.

AFCA’s determination was made in favour of the complainants and, within 28 days of Kate and Dominic accepting this determination, ACME Advisors was to pay the complainants $157,224 plus interest.

By not disclosing required information and misleading the client by omission, the adviser potentially breached the following standards in the Code of Ethics:

Case study three – misclassification of ‘sophisticated investors’

The complainants, Esther and Craig, jointly applied to invest in a private equity fund being promoted by their financial adviser Sam, an authorised representative of ACME Advice. The financial firm assessed, accepted and processed the complainants’ application. ACME Advice had also previously prepared and issued the Information Memorandum (IM). The private equity fund, which invested in a sole asset, ultimately failed.

The IM stated that investment in the fund was restricted to “wholesale clients” as defined in s761G or “sophisticated investors” as defined in s761GA of the Corporations Act 2001. Esther and Craig claimed say they were retail investors and should not have been allowed to invest in the fund.

The main argument ACME Advice put to AFCA was that the complainants acknowledged they were not retail clients on the application form.

Sam’s dealings with Esther and Craig included assessing the complainants as sophisticated investors (which was a necessary step in the application to invest in the fund) and assisting the couple to apply to invest in the fund, which was inappropriate for their risk profile and objectives.

AFCA found that Sam and ACME Advice incorrectly assessed Esther and Craig as sophisticated investors and they were, therefore, ineligible to invest in the fund. ACME Advice should not have accepted their investment application. Consequently, AFCA found that the complainants are entitled to $200,000 plus interest as compensation.

As a result of AFCA’s findings, both Sam and ACME Advice potentially breached the following standards in the Code:

Case study four: Misleading and deceptive conduct

Julia made a complaint to AFCA about an investment of $125,000 she made in a managed investment fund. The financial advice business for which her adviser Phoebe worked, ACME Financial Services, was identified as the Responsible Entity and the issuer of the units in this unlisted fund that invested in childcare properties.

Julia claims that:

• She was approached by her adviser Phoebe, a director of ACME Financial Services, to invest in the fund.
• Phoebe promised Julia a guaranteed rate of return of 12.5% per annum and stated it was a low-risk product; given the low rates offered by term deposits at the time, it was positioned as a favourable alternative.
• Phoebe failed to assess the suitability of this product for Julia before she invested in the fund.
• Julia requested a withdrawal of her entire investment, and, despite repeated withdrawal requests, none were processed, and no funds were paid to her.

AFCA found Phoebe’s encouragement to invest in the fund to be misleading, and the promise of guaranteed returns and a low-risk investment constitute misleading and deceptive conduct. AFCA believed it was reasonable to expect that the complainant would not have invested, had she known about the risks associated with the fund.

In addition, AFCA found that Julia had limited financial literacy, and she did not understand the recommended investment, the fees charged, or the investment timeframe required. ACME Financial Services was found to have breached its obligations, and the determination was in her favour. Consequently, ACME Financial Services had to repay Julia her $125,000 investment, plus interest.

Phoebe and ACME Financial Services potentially breached the following standards of the Code of Ethics.

Ethics are crucial in running a successful financial advice practice because they build the trust and credibility essential for long-term client relationships. Ethical practices ensure advice is in the client’s best interest and protect you and your firm from reputational and legal risks. An ethical practice also fosters a positive workplace culture where integrity and accountability guide decision-making. Ultimately, an ethics-driven approach supports sustainable business growth and professional excellence.
 

Take the FAAA accredited quiz to earn 0.75 CPD hour:

CPD Quiz

The following CPD quiz is accredited by the FAAA at 0.75 hour.

Legislated CPD Area: Professionalism & Ethics (0.75 hrs)

ASIC Knowledge Requirements: Ethics (0.75 hrs)

please log in to start this quiz

 

———

Notes:
[1] Last published October 2024, https://faaa.au/value-of-advice-index-shows-improvement-for-advised-australians/