Ethically speakingTroy Smith

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• Ethics are:

• Moral principles that govern a person’s behaviour or conduct of an activity

• The rules of conduct that govern a group of professionals

• Ethics in financial planning

• FPA’s code of ethics

• AFA’s code of ethics

What are ethics?

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Let’s start with the fun stuff

• Consider different ethical situations • Sourced from the St James Ethics centre

• What do you do?• Read the scenario• Discuss with your colleagues• Vote on what you would do

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Ethical scenario 1

A colleague you've worked with for the past three years asks you to cover for him for an hour or two after business hours while you're working overtime.

In particular, he asks that if his wife should telephone to speak with him, you should tell her that he is caught up in a late meeting and that you will pass the message on to him when he is free.

What should you do?

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Ethical scenario 1

Question 1: Do you pass on the message?

1. Yes, I will pass on the message2. No, I won’t pass on the message3. I am going to ignore all the phone calls for the next few hours

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Ethical scenario 2

Consider the NEXT ethical scenario

First vote – don’t discuss. • Decide what you would do

Second vote – discuss.• Discuss the scenario with your colleagues.• Vote again. Has your vote changed?

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Ethical scenario 2

The company you're working is about to be restructured. Everyone knows that there will be some redundancies. You work for the HR Director. One day at lunch, a colleague mentions that she is about to take on a heavy debt in order buy a new house. She needs the space as she is due to have a third child in a few months' time. You recognise the name as she is someone identified for retrenchment.

Should you betray the confidence of your manager or show loyalty to your colleague?

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Ethical scenario 2

Question 2: Should you betray the confidence of your manager or show loyalty to your colleague?

1. Yes, I will tell my colleague about the redundancy2. No, I won’t tell my colleague about the redundancy

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Ethical scenario 2

Question 3: Should you betray the confidence of your manager or show loyalty to your colleague?

1. I haven’t changed my mind. Yes, I will tell my colleague about the redundancy2. I haven’t changed my mind. No, I still won’t tell my colleague about the redundancy3. I have changed my mind. Yes, now, I will tell my colleague about the redundancy 4. I have changed my mind. No, now, I won’t tell my colleague about the redundancy 5. I’m confused. I don’t know what I will do.

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Ethical scenario 3

You manage a small team of eight in a large company and your team has just won an award for the best performance for the past six months—an award your team won twice last year. The prize is lunch at a popular bistro, followed by a “tradition” of kicking on to some nearby bars.

You’re aware that one of the team members has recently faced a problem with alcohol that had been affecting her work and personal life. She’s told you that she is getting treatment and things seem to be progressing well, but you’ve noticed that lately she hasn’t been coming for a drink after work. As far as you know, none of her colleagues are aware of her situation.

Other staff members have told you how much they are looking forward to the celebration, but you’re concerned that she may not feel able to come. She is a key member of the team and her work has contributed significantly to the team’s success.

Should you consider some other form of reward outing, one that she will feel more comfortable about? But what about how the other team members feel?

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FPA code of conduct

Principle 1: Client firstPlace the client’s interests first

Principle 2: Integrity Provide professional services with integrity

Principle 3: ObjectivityProvide professional services objectively

Principle 4: FairnessBe fair and reasonable in all professional relationships. Disclose and manage conflicts of interest

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FPA code of conduct

Principle 5: Professional Act in a manner that demonstrates exemplary professional conduct

Principle 6: CompetenceMaintain the abilities, skills and knowledge necessary to provide professional services competently

Principle 7: ConfidentialityProtect the confidentiality of all client information

Principle 8: DiligenceProvide professional services diligently

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FPA Code of conduct

Henry has been a planner for over 20 years. With his working life running down, Henry has become less engaged with his professional education. He sees CPD as an imposition, and much to the amusement of his peers, has been known to fall asleep at PD days.

During a review meeting, one of his long term clients has told him that his wife is entering a residential care facility. Henry calculates the fees using old deeming rates, and recommends a strategy based upon the pre July 2014 rules.

As a result, his strategy imposes high costs for no financial gain.

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FPA Code of conduct

Discuss amongst your colleagues. List the areas of the FPA Code of Conduct that Henry failed to demonstrate:

• Principle 1: Client first• Principle 2: Integrity• Principle 5: Professionalism• Principle 6: Competence

Did you decide that Henry failed to demonstrate other principles from the FPA code of conduct?

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Meet Julian

Julian is 67 years old. He has recently received an inheritance from his late mothers’ estate. During the course of the discussion, you mention that if he was working then he would be able to contribute the money to his existing super fund – the ABC Retail Fund.

Julian says that he is happy to ‘tick any box’ on a form, if contributing the money to super gives him a financial advantage.

The fact is that you need this $180,000 contribution to meet your monthly target.

Would you permit Julian to make a false declaration?

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Meet Julian

Would you permit Julian to make a false declaration?

Reflect on what you would do. Chat to your colleges.

Let’s change the assumptions. Assume that the contribution is being made to a OnePath fund.

Does the fact that your license to advise is issued by the same company that operates the super fund alter your position?

Reflect on what you would do. Chat to your colleges.

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Remember Julian?

Let’s assume that he made a false declaration to a superfund in respect of his declaration of employment.

• What are the implications?

• Who is responsible?

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Remember Julian?

Let’s assume that he made a false declaration to a superfund in respect of his declaration of employment.

However, he didn’t make the contribution to a retail fund. He made the contribution to his SMSF.

• How does the trustee of the SMSF respond to the false declaration?

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Meet Mary

She is a widowed pensioner. Mary’s husband passed away 3 months ago, and she is asking you to assist with some Centrelink forms. Although you have met Mary on several occasions, her late husband always dealt with the finances.

During the course of the discussion, Mary asks you if she should sell her $500,000 UK share portfolio. This is the first time that you have heard of this asset, and you realise that it has never been declared to Centrelink.

After doing some quick calculations, you determine that the clients’ would have exceeded the assets test threshold and should not have received an Age pension. What do you do?

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Meet Mary

Question 4: Will you declare the UK share portfolio to Centrelink?

1. Yes, I will instruct Mary to inform Centrelink of the increased assets assessment.

2. No, I won’t instruct Mary to inform Centrelink of the increased assets assessment.

3. It isn’t my problem

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Remember Mary?

She is a widowed pensioner. She has a $500,000 UK share portfolio. What are the implications of declaring the portfolio to Centrelink?

• May lose her payment entirely• May have a reduction in her payment• A debt may be raised

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Remember Mary?

Question 5: Let’s change the assumptions. Mary still has $500,000 of UK shares. However, Centrelink was informed about the shares (and you can prove it).

Do you have to declare the UK share portfolio to Centrelink?

1. Yes, I will instruct Mary to inform Centrelink of the increased assets assessment 2. No, I won’t instruct Mary to inform Centrelink of the increased assets assessment 3. I don’t need to inform Centrelink as they have already been informed.

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Meet Ralph

He is a self employed electrician. He has been running his own business for around 10 years. During the course of your interview, you ask him to estimate his business income.

He tells you that his income is approximately $2,000 per week but that includes his ‘cash jobs’. He proceeds to tell you that his official income is about $1,000 per week.

What is his obligation to inform the ATO?

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Meet Ralph

Question 6: Should Ralph declare the income to the ATO?

1. Yes, he should declare the income to the ATO2. No, he doesn’t need declare the income to the ATO, it is the responsibility of the ATO

to identify the income.

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Meet Ralph

How does the Australian Taxation system operate?• Operate under a self assessment model• ATO generally accepts claims and assessments

• Subject to audits

• Review periods• Individuals & Small business: 2 years• Other taxpayers: 4 years• Fraud and evasion: Unlimited

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The wrap-up

• Ethics• FPA Code of conduct• Common scenarios