Despite an ongoing emphasis on ethics training for financial services providers (FSPs) and the importance of getting ethics CPD points regularly, the financial planning profession seems never far from a fresh controversy. The leading wealth manager in the UK, St James Place (SJP), recently had to make a GBP450-million provision to pay back up to 15 000 clients who were charged for services they did not receive. This hiccup comes hot on the heels of SJP last year agreeing to stop their practice of penalising clients when withdrawing from funds with a 6% exit fee.
In South Africa, a financial advice business has hit the headlines because it has been accused by whistle-blowers of paying financial advisors sign-on bonuses masked as vocational restraints of trade payments. These bonuses and enhanced commission incentives were allegedly paid for advisors to churn their clients’ investments into higher income-generating assets for the company in question. The Financial Sector Conduct Authority is investigating the allegations, so the jury is still out on what has happened, but stories like this and that of SJP undoubtedly make clients question the ethics of financial planners.
After all our ethics training, where are we going wrong? Arguably, if we stick to the basics of what is ethical, we can’t go far wrong. The first Financial Advisory and Intermediary Services (FAIS) Ombud, the late Charles Pillai, once shared with me what he thought the basics are: “If a financial planner just acted in a client’s interests they wouldn’t have to worry about compliance and regulation”. His view is clarified in Section 3 (1)d of the FAIS General Code of Conduct which states that when rendering a service to a client, “The interests of the client… must be accorded appropriate priority over any interests of the provider”. We could debate how to define “appropriate”, but the word “priority” is clear: the clients’ interests come ahead of the financial planner.
The new CEO of St James Place, Mark FitzPatrick is committed to cleaning up the poor historic practices at a business which services over 10% of the UK wealth management market, with over 900 000 clients advised by around 2 200 financial advisors. New brooms sweep clean. In so doing, if St James Place was a South African FSP, FitzPatrick would need to consider the question: Does SJP give its clients “appropriate priority”? Despite his South African roots, this is not a requirement for him, but it is a question South African FSPs ideally should be asking themselves on an ongoing basis.
A test that all South African financial planners could take to help them assess whether they give clients “appropriate priority” when giving advice is what may be appropriate to call the 3 “P” test. First, the “Press” test: Would you be happy if the advice you give clients; the products and funds you recommend; and the fees you charge appeared on the front page of a national newspaper or made social media headlines? Second, the “Peer” test: Would you be happy for your fellow professionals to review all your advice, products, funds and fees? Third, the “Personal” test: Would you give yourself, your family members or close friends the same advice, products and funds and charge the same fee?
Ethical hiccups are always helpful reminders for us to get back to basics when it comes to the ethical treatment of clients and to consider whether we give “appropriate priority” to clients.
