In today's fast-moving financial world, ensuring you’re working ethically has become even more crucial. As investment products become more complex, clients become more discerning, and regulators increase scrutiny, ethical conduct is a necessity and not a choice. We look at the potential pitfalls and highlight how you can ensure you’re acting with everyone’s best interests at heart.
Transparency and trust
One of the most fundamental ethical principles in finance is transparency. Your clients are trusting you with not only their hard-earned wealth but also their financial futures. So, being completely upfront about the risks involved and how you’re managing them are key to helping them make informed decisions.
A survey by the FSCS found that only around half of respondents (57%) said financial advisers were fairly or very trustworthy, meaning you have your work cut out to convince potential clients you want the best for them.
Create a standardised, easy-to-understand breakdown of fees so clients know exactly what they’re paying for and why. And regularly review it to ensure they remain competitive and match your clients’ best interests.
Managing conflicts of interest
Conflict of interest is an ethical quagmire that can have far-reaching consequences. Conflicts can result from several sources, such as commission-based compensation, affiliations with financial institutions, or personal bias. To ensure ethical integrity, it’s essential you proactively identify, disclose, and manage any conflicts. This involves implementing robust policies and procedures to ensure clients' best interests are not compromised. Failing to do so can result in huge fines, reputational damage and legal consequences. And it’s not just big firms who run the risk. In 2022, the FCA fined five financial directors over £1m and banned them from working in finance after pension customers lost significant amounts of money by investing with a firm the directors held a stake in.
If you’re an agency with a number of employees, it’s worth thinking about introducing a dedicated ethics committee or role tasked with evaluating and addressing conflicts of interest. Even if you’re a sole trader, regular training sessions on conflict resolution can help make sure you’re always on top of the latest regulations and compliance concerns.
Prioritising clients’ interests
It's clear that prioritising your clients’ best interests is the cornerstone to a successful relationship – and business. In a nutshell, this all comes down to maximising your clients’ returns while minimising the risk. This means choosing investment opportunities that match their financial goals, lifestyle and attitude to risk, rather than opting for those that simply offer you a large commission. And, of course, breaking the FCA’s rules on suitability can lead to regulatory action and/or suspension.
Having a clear, open and honest conversation at the outset will enable you to create a client-focused, all-round approach, and help to build that all-important trust and credibility. However, in busy and volatile economic times, it’s easy to move on to the next priority. But it’s just as important to regularly review and update clients’ investments to make sure they’re on track. And ensure you keep in touch from time to time in case their needs and objectives have changed.
Treating Customers Fairly (TCF)
TCF outlines six considerations – or ‘outcomes’ – that make sure customers receive fair treatment throughout their financial journey, from your initial consultation to ongoing support. These include clear communication, ensuring any products or investments are suitable, and a commitment to correcting any issues as quickly as possible.
Complementing TCF is Consumer Duty, introduced in July 2023. Because both protect people and prioritise fair treatment, there can be a tendency to think of it as a pumped-up TCF. However, Consumer Duty sets higher and clearer standards of consumer protection, and ensures you put your clients front and centre.
Flagstone’s ‘Meeting the Consumer Duty challenge’ article highlights all you need to know.
At Flagstone, we know ethical ways of working go hand-in-hand with providing financial advice. We also believe that it’s not just a regulatory requirement but a moral obligation that leads to trust and long-term relationships that benefit everyone.
As well as setting the highest ethical standards for ourselves, we aim to make sure that you – and all of our IFA and banking partners – have the support and information you need to do business ethically, and allow your clients to make informed choices.
As the UK’s financial landscape continues to evolve, having clients' best interests at heart, and meeting the twin principles of Treating Customers Fairly and Consumer Duty are essential. By working together and promoting ethical values, we can ensure a more transparent, trustworthy, and brighter financial future.