How personal events can lead to ethical breaches for advisers

Sleeping with a Professional Year candidate and borrowing money from clients are examples of real-life ethical breaches by financial advisers. 

Rhett Das, a solicitor and managing director of Integrity Compliance, discussed ethical breaches and how much breaches in financial advisers’ personal life can overlap to affect their work. 

There are examples, he said, where advisers have blurred the lines of their work and personal lives, including by sleeping with clients or with a Professional Year candidate they are supervising or from borrowing money from clients.

Das noted: “If you think about the principles, about what’s ethical and what’s honest, you are influencing someone, and I have had to get involved in matters where people are sleeping with clients, and it’s really unfortunate when someone gets taken advantage of and loses a lot of money.

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“You must avoid situations that reflect adversely on the integrity or fitness of financial planners or members of the financial planning profession.”

Unlike the legal profession, he said, some people in the advice industry are failing to consider the seriousness of their actions and how they could impact their careers. 

This is reflected in ASIC data about the reportable situation regime where it said it is concerned about the industry inaction when it comes to reporting breaches with just 11 per cent of the AFSL population reporting breaches. 

“Next time you are confronted with an ethical dilemma, think about what it will mean if you do the wrong thing or your peers think you have done the wrong thing, does that mean you could lose the equivalent of your practicing certificate? I don’t think it’s in the vernacular of advisers and it’s something they should be thinking about. 

“It’s not just what you do in work, it’s what you do outside of work that can have an impact on whether or not you can provide advice again,” he remarked.

Another example of how personal lives may come under scrutiny is if a divorce and separation of assets or an issue at another business controlled by the individual goes to court.

Under the Financial Advice Association Australia (FAAA) membership, a notifiable event includes if an adviser becomes a defendant or respondent in any criminal, civil or regulatory proceeding or investigation.

FAAA general manager for policy and advocacy, Phil Anderson, said: “It’s covered under the bullet point of ‘criminal or civil proceeding’. If it’s a civil matter then yes, you may need to notify. I don’t think that the intent is to be dabbling in your personal life, but to the extent that there is a civil proceeding against you, then it would come under that point.”

Das also referenced a recent story about Melbourne adviser Mark Babbage who was banned for six years after travelling to Western Australia to watch the AFL grand final. He had previously been banned for 10 years but was later decreased down to six following an appeal by Babbage, which Das felt was the right action to take.

“He made two declarations, he showed them a lease that he was a resident in Northern Territory and had a Northern Territory driver’s licence so he wasn’t just dishonest once, he did it a couple of times. Because he is part of the profession, that just didn’t go right,” said Das.

“I agree his sentence should have been reduced as he didn’t actually cause client harm. So he did the wrong thing, but he didn’t steal from anyone; he just did something really dumb.”