Professional standards to ease vertical integration concerns
Some of the issues surrounding vertical integration in the financial services industry may start to subside once financial advice is recognised as a profession, according to the executive director of the The Ethics Centre.
Speaking to ifa, Simon Longstaff said there are other industries successfully managing conflicts of interest because of "strict ethical boundaries" that are tied to the profession, such as doctors and lawyers.
"At the level of principle, the challenge of vertical integration has been met by other organisations by creating really thick ethical skin around members of the profession," he said.
"In the world of financial services, particularly as financial advisers start to move toward becoming a fully fledged profession, they are going to have the same challenges as those other professions.
"There is no reason, in principle, why they can't be just as successful at recognising and respecting the ethical boundaries in which they need to operate, even though they are an employee or a licensee within these vertically integrated structures."
Last week, ASIC released a report stating that while many vertically integrated businesses are managing conflicts of interest well, there are still players that are not taking their obligations seriously.
Mr Longstaff said some companies do not view ethics and culture as important responsibilities for management. Instead, they will often point to the individual, or 'bad apple', in instances of misconduct.
"It's very easy to dismiss bad behaviour when you say, 'Oh, it was just a couple of bad apples'. Bad apples need somewhere to grow," he said.
"Typically, you'll find that these bad apples have been in the organisation for quite a while. Frequently, they have been successful and well rewarded and there is something about the underlying culture of the organisation that hasn't had within it the capacity to recognise that they are potential trouble and to deal with them."
Mr Longstaff is expected to discuss the issue of culture and ethics with ASIC chairman Greg Medcraft on 4 April during the Leading Edge event in Sydney.
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