MAA250

Topic 7

Ethical Behaviour and

Conflict of Interest

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 LEARNING OUTCOMES

• Understand the expectations and responsibilities of

ethical behaviour from financial professionals.

• Understand the relevant codes and sections of FASEA

and APES110 in relation to ethical behaviour and
conflict of interest.

• Resolve ethical dilemmas in relation to conflict of

interest.

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 RECAP TOPIC 5&6:
PROFESSIONAL ETHICS
Conflict of Interest
Financial Professional
ANSWERABLE

Employer
Financial Public
Professional

Client

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WHY THE CODES OF ETHICS
( A P E S 1 1 0 A N D FA S E A C O D E ) A R E
NECESSARY?

RECAP WEEK 1: Hierarchy of Ethical Decision-Making

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 RECAP WEEK 5:
PROFESSIONAL ETHICS

Financial Professional

• someone who assumes an obligation of self-

disciple above and beyond the requirements of
the law and regulation.

• takes on an additional burden of ethical

responsibility by adhering to the public interest

• have a larger responsibility to the public than to

client or employer’ (more in week 6)
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 R E C A P : FA S E A C O D E

FASEA Values   

Trustworthiness  To act in good faith in your relationships with other people and act with integrity and
honesty in all your professional dealings. Trust can be destroyed, in an instant, if the
adviser neglects, or is perceived to neglect, their duty to the client. 

Competence  To have regard to the knowledge, skills and experience necessary to perform your
professional obligations. Of equal importance is that this knowledge be applied in
practice and in ways that are tailored to the best interest of each individual client. It
follows that advisers should be aware of the boundaries of their knowledge, and
hence the boundaries of their ability to provide advice in particular scenarios. 

Honesty  To conduct yourself with complete integrity in all your professional dealings. It
requires transparency, frankness and fairness to each of your clients, even where this
may cause your personal detriment. 

Fairness  To bring professional objectivity to the task of engaging with clients professionally. It
requires you to properly investigate, evaluate and diagnose a client’s need for
professional services, and to self-reflect on the limits of your professional
competency. 
Diligence  To perform all professional engagements with due care and skill. It requires you to
manage your time and resources to deliver professional services in a timely, efficient
and cost-effective way to each client. 
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 RECAP: APES 110

APES110  
Principles 
Integrity  Being straightforward, honest, sincere and using one’s convictions to
withstand pressure from significant others to impair integrity 
Objectivity  An impartial attitude that has regard for considerations relevant only
for the facts at hand 
Competence and The attainment and maintenance of a level of knowledge from formal
Due care  education, training and continual professional development, that
enable a professional to render services with expertise. Due care is
the quest for excellence in the provision of professional services and
acting in the best interests of those who rely on it 

Confidentiality  To ensure that information acquired in the course of one’s work is not
disclosed to a third party without express authority 
Professional Behaviour that is consistent with the good reputation of the
behaviour  profession 
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 FA S E A C O D E

• Code of ethics (the “code”) was made by Financial

Adviser Standards and Ethics Authority Ltd (FASEA) on
the 8th Feb 2019.

• specifies a set of principles (standard) and core values

that lays the foundations for financial advisers and
planners.

• The code comprises 5 values and 12 standards.

• No part is optional. No part is deemed more important

than another
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 FA S E A C O D E

• Compliance with the code is effective from Jan 1, 2020.

• seeks to impose ethical duties that go above the
requirements of the law
• principles-based model-accords advisers the flexibility
to exercise personal judgement within established
boundaries
• deliberately used word like ‘might’ and ‘could’ —
requires the exercise of professional judgement.
• The Code has been drafted in broad terms so as to limit
the intent of exploiting the loopholes.

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 FA S E A C O D E

• Under s 921E of the Corporations Act 2001 (Cth)

(Corporations Act), all advisers must comply with the
Code.
• Failure to comply with the Code is not a criminal
offence
• However, ASIC may suspend or terminate the financial
services licence of an adviser and/or their principal for
a breach of the Code.

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 FA S E A C O D E

• Aims:
• to encourage higher standards of behaviour and
professionalism in the financial services industry.
• Provides individuals with a compass for navigating
ethical complexity
• to establish a common ethical foundation for all
advisers working in Australia regardless whether
belong to a professional association

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 FA S E A C O D E

• Standards 1-3 of FASEA provide guidance regarding

conflict of interest as well as the professional qualities

• important to understand and interpret the standards

collectively

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 FA S E A C O D E

• Fundamentally the standards are:

• Standard 1: Acting in accordance with laws (bare

minimum legal requirements)
• Standard 2: Integrity (a fundamental quality to cope
with the pressures of ethical dilemmas)
• Standard 3: Conflict of interest (a common ethical
dilemma to resolve the tension between competing
interests).

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 FA S E A C O D E

Standard 1: Acting in accordance with laws

“You must act in accordance with all applicable laws,

including this Code and not try to avoid or circumvent
their intent.”

• Financial advisers must not deliberately or knowingly

attempt to avoid or work around the intent of
applicable laws — including the FASEA Code which has
legal effect

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 Practice Case

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 Discussion Points

Does Donna have the appropriate

competency? Does Wallace have an
obligation to step in? Why or why not?

What ethical theories motivate the

possible actions Wallace might take in this
situation?

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 FA S E A C O D E

Standard 2: Integrity

“You must act with integrity and in the best interests of

each of your clients.”

• directly linked to the FASEA values of ‘trustworthiness’

and ‘honesty’
• acting with integrity requires openness, honesty and
frankness in all dealings with clients.
• requires financial professional to keep their promises
(explicit and implied) and honour the commitments
they make to your clients.
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 FA S E A C O D E

Standard 2: Integrity

• Act in the best interest (not wants /desires) of the

client to the greatest extent possible.
• Judgement & advice are not distorted by own interests
(or biases) that affect the “best” interest of the client.
• need to inquire more widely into the client’s
circumstances (not just limited to the information
provided by client) if it is the “best” interest of client.

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 Practice Case

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 Discussion Points
Has Lena provided advice in the best
interests of the client? Why or why not?

What ethical theory can explain Lena’s

point of view?

As a financial professional is it Lena’s

responsibility to be aware of the mental
health needs of the client? Why or why
not?
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 FA S E A C O D E

Standard 3: Conflict of interest

“You must not advise, refer or act in any other manner

where you have a conflict of interest or duty.”

• is at the core of the professionalisation of the financial

advice sector
• to curb the self-interest of the professional adviser than
to favour the interests of their clients

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 FA S E A C O D E

• An adviser needs to ask if:

•
an unbiased (disinterested) and reasonable person,
•
in possession of all the facts,
•
could reasonably conclude,
•
that an arrangement or benefit could induce an
adviser to act other than in their client’s best
interest.
• If an adviser fails the test, then s/he is in breach of
Standard 3.
• ‘disinterested’ person if they do not have an interest in
the outcome vs ‘uninterested’ person— those who do
not care about the outcome.
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 FA S E A C O D E

• If there is a conflict of interest, adviser must:

• disclose his/her conflict of interest, and obtaining

client consent to act in such circumstances
• Refer client to other provider where referral has no
benefits to the adviser
• Cease from providing service

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 Practice Case

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 Discussion Points

Has the potential for conflict of interest

been carefully and appropriately navigated
in this situation? Why or why not?
Is the referral protocol appropriately
administered? Why or why not?
Are they ultimately working in the best
interests of their client? Why or why not?
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 APES 110 CODE OF ETHICS FOR
P R O F E S S I O N A L A C C O U N TA N T S

• Quite similar to Standards 1-3 of FASEA but focus on

accounting profession.
• Part 2 Section 210 focuses on conflict of interest Part 2
Section 210 focuses on conflict of interest with additional
guidance in Part 3 Section 310
• Fundamentally these guidelines are:
• Proactively identifying the conflict of interest.
• providing guidance for coping with conflict of
interest
• outlines key steps to navigate conflict interest
• outlines core values (objectivity, confidentiality, and
professional behaviour) to guide the pursuance of
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the steps to navigate conflict interest
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 CASE STUDY
GOOGLE

Google cofounder Sergey Brin became involved romantically with a Google employee and
subsequently divorced his wife. Complicating things further, Brin’s former sister-in-law and
former brother-in-law both have major positions at Google. Brin insists that nothing about his
new (or former) relationship will impact Google; but some suspect that this story is only the
beginning of a large problem for Google. 

Google maintains an informal approach to workplace dating and its code of conduct does not
prohibit dating between employees. The code states: “Romantic relationships between co-
workers can, depending on the work roles and respective positions of the co-workers
involved, create an actual or apparent conflict of interest. If a romantic relationship does
create an actual or apparent conflict, it may require changes to work arrangements or even
the termination of employment of either or both individuals involved.”

Brin is an important and, some argue, vital part of the Google company and its research and
development teams. He also has a controlling interest of Google stock. According to one
article, Larry Page, the CEO and other cofounder, was extremely upset with Brin’s relationship
and they did not speak for a time. Further, some Google employees, especially women, were
furious that Brin and his girlfriend were not more separated professionally.
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 DISCUSSION POINTS

• The cost of Brin‘s alleged “errors” compared to the cost of his departure from
Google might seem to weigh in favour of keeping Brin employed. Would you
argue that employee morale surrounding this situation is so damaging to the
work environment that it outweighs Brin’s current and future contributions?
• Should the Brin's partner be fired? If so, on what basis? Is it possible for them
to be professionally separated when one of them is the CEO? Does Google
need a clearer policy on workplace romance?
• Should workplaces simply prohibit workplace dating in order to have a
clearer line of demarcation? If so: What ethical issues do you anticipate and
how do you plan to respond to them because planning ahead will help you to
prepare most effectively and ethically? Who are your stakeholders and what
options do you have in your responses to those stakeholders in order to best
meet each of their interests and rights?
• If you opt for a prohibition, how do you plan to enforce it? Are you willing to
hire someone who is dating a current employee? Must they stop dating?
28 What problems might arise as a result of your policy, in either direction?
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