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Developing your advice business

Principles for succeeding with ethical decision-making

Embedding ethical considerations into decision-making processes means striking the delicate balance between doing what is good for you and your business and doing what is good for clients. During a recent Zoom webinar, Dr Paul Vorster, research specialist at The Ethics Institute, explored ethical decision-making principles that can be applied to foster better outcomes for your clients and advice business. Watch the recording of the presentation and read a summary of some of the key takeouts below.

The story of Bernard Madoff, the late American financier and Ponzi scheme mastermind who swindled US$64.8 billion from investors over two decades, provides a case study on the behaviour and decision-making processes professionals in the financial services industry should avoid. While it appears that he had not, from the onset, set out to establish a dishonest business and the world’s largest Ponzi scheme to date, a series of unethical decisions made over a long period of time ultimately led to his downfall.

There are several lessons to be learnt from the Madoff saga, key among which is the importance of being transparent with your clients. This applies to your ethical stance, investment philosophy, the product providers you work with and your relationships with them, the guiding standards of the products, and ensuring that clients understand how fees are earned. Transparency enables you to build trust and strengthen relationships with your clients.

Two approaches for testing decisions and managing ethical dilemmas

There are two question-based approaches you can apply to your decision-making processes and management of ethical dilemmas. The first is known as the five tenets of ethical decision-making. This approach involves testing your decision-making processes by asking yourself:

1. Who will benefit from or who will be harmed by my decision?

This circles back to ethical thinking and balancing the impact the intended action could have on your clients against the impact it could have on your business. Clients should always benefit and not be harmed by the decisions they trust financial advisers to make.

2. Does the decision pass the test of reversibility and universality?

Reverse the roles: Ask yourself if you would feel comfortable in a similar situation and whether the proposed solution is a universally accepted action?

3. Would I feel comfortable making my decision public?

The rule of thumb is that if you’re not comfortable with making public the action you intend to take, it is safe to say it is unlikely to be the right action to proceed with.

4. Does the decision or action make me feel good as a person?

The critical consideration here is determining whether the action does anything to further your purpose or potential.

5. Is the decision I am making fair to all parties?

Determining what is fair can be subjective and sometimes an action can appear unfair, but you also need to consider whether the action can be justified.

The second approach, called the LSSD ethics decision framework, presents four questions you can ask when facing ethical dilemmas. This approach can guide your thought process and help you reach the right and ethical decision. Below are the questions to pose:

If the answer to any of these questions is no, it should serve as a red flag and cue to abandon the action under consideration.

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