Given the nature of their work, most financial advisers are acutely aware of their ethical responsibilities when it comes to dealing with clients. However, the role that ethics play in building the organisational culture of financial advice businesses is often overlooked. During a recent webinar hosted by Allan Gray regional manager, Suzanne Wiid, Dr Paul Vorster, research specialist at The Ethics Institute, discussed the importance of ethics and how they influence the sustainability of financial advice businesses. He also shared some insights to help advisers improve the ethical culture in their organisations. Watch a recording of the presentation and read a summary of the some of the key takeouts below.
When we discuss organisations, such as financial planning businesses, we are often tempted to describe them by focusing on tangible markers, such as assets under management, the range and scope of their offerings and the size and capabilities of their teams. But when we look beyond these elements, an organisation is made up of a complex set of relationships between various internal and external stakeholders. Ethics is at the core of these relationships, as each relationship is ultimately built on mutual beneficence; the notion that each party will behave in a manner that benefits the other party. This unspoken understanding relies on trust. Thus, fostering a strong ethical culture should be a key consideration in any organisation.
One of the reasons ethics is sometimes overlooked at an organisational level, is that we tend to think of it through our individual lenses. A poll conducted during the webinar showed that while all the attendees believe that they are ethical people, and 98% believe that they work for ethical organisations, just 10% believe that we live in an ethical country. An individual’s morality, which is their personal sense of what is right and what is wrong, is shaped by various forces in their environment, so it is highly unlikely that all people would always behave ethically in an unethical society.
Factors that influence our morality include religion, the law, professional codes, rules, our values and even our gut feelings around certain issues. As these factors vary greatly from person to person, it is critical for organisations to make a conscious effort to develop a strong ethical culture. It may be useful to think of ethics as the well-founded societal standards of what is right and wrong that guide what we ought to do when no one is watching.
The specialist’s dilemma
As a financial adviser, you are effectively responsible for guiding the management of assets on behalf of individuals and businesses. In most cases, clients have decided to source your professional financial advice as they lack specialist knowledge and expertise when it comes to the markets, financial matters and investment products. As such, they trust you, as their financial adviser, to conduct yourself in an ethical manner and provide guidance that leads to the best possible financial outcomes. The client compensates you for this and, if you both behave ethically, the relationship is mutually beneficial.
Financial advisers are tasked with balancing several interests in their day-to-day work and will encounter numerous ethical challenges throughout their careers. Their decisions and actions will be heavily influenced by the ethical cultures of the organisations they work within.
Managing your ethical culture is good for business
As organisations are relationship driven, their long-term success hinges heavily on the health of their reputations. This is particularly true for you, as a financial adviser, as you rely heavily on your reputation to sustain and grow your business.
Organisations that have weak ethical cultures are more likely to experience ethical lapses and failures with the potential to damage their reputations. If the members of your business aren’t guided by a strong ethical culture, they are more likely to make decisions that favour their own interests at the expense of client outcomes, the organisation’s interests and the relationships your business has with its stakeholders. Over time, this can threaten your business’s bottom line.
In organisations with weak ethical cultures, anti-social behaviour, sabotage, bullying, deception and misconduct are rife. Organisations like Enron illustrate how ethical failures as a result of a poor ethical culture can erode a business’s reputation and destroy an organisation.
Improving your practice’s ethical culture
Culture is a powerful force and helps groups adapt in environments that are constantly changing. Cultures develop from the shared beliefs and assumptions that shape the thinking, behaviour, norms and values of groups of people. In an organisation, these shared assumptions and beliefs influence everything from the dress code and language used, to hierarchical structures and operational rules. An organisation’s ethical culture is dictated by the shared beliefs and assumptions about what is right and what is wrong and influences the way individuals within the organisation behave.
As a leader, it is essential to put ethics on the agenda and deliberately revisit the subject regularly. Investing in this aspect of your advice business has numerous benefits: It improves job satisfaction, strengthens trust, loyalty, and commitment, increases staff retention rates, encourages individual accountability, and enhances decision-making and judgement.
A business’s ethical culture can be improved by:
- Treating all stakeholders with respect
- Rewarding people for doing the right thing
- Having open conversations about ethics and ethical challenges
- Being clear about how conflicts of interest are managed, to ensure that what is best for clients, partners, employees, and other stakeholders is prioritised
- Raising awareness of biases that may present ethical challenges
- Watching the language used to express goals and objectives
- Acting in ways which demonstrate commitment to ethical behaviour
- Taking clear, decisive and demonstrative action when there are ethical transgressions
- Having a clear code of conduct and rules
- Ensuring that realistic goals are set and that they are achievable without compromising values
Your ethical culture is a valuable resource and should receive the same amount of time and attention as the other critical resources in your business. It is important to remember that ethical culture is built over time and in a state of constant flux. Discussing ethics with your colleagues on a regular basis is not only the best way to avoid ethical lapses, it is also vital to the long-term sustainability of your advice business.