Financial Planning Firms Practices and Advice - Assignment Example

Student Name: Tutor: Title: Financial planning firms, practices and advice Course: a) Professional issues from scandals that involve financial planning, firms, advice and practice Ethical issues with regard to financial services industry affect many people either directly or indirectly. Practitioners and consumers are all affected when ethical issues in the financial service industry are raised. Australian scandals involving financial firms, practice and advice raises important professional issues when it comes to seeking financial advice. Clients have lost millions of money in scandals that could have been avoided if the right kind of information had been provided in advance. Clients entrust financial planners and advisers with the responsibility of giving them sound advice on the investments that they are about to make or anticipate to make (Jones, 2011). When a big scandal that involves loss of money occurs, professionalism of financial planners, practice and advice is put to question. Do these practitioners in the financial service industry have some code of professionals, ethics and conduct when offering their services? In many industries, the interests of the clients come before the interests of the organization. This is crucial because the firm want to retain customers and increase its customer base for growth, profitability and productivity. It comes as a shock when in financial service industry practitioners are more into enriching themselves than giving sound advice to their clients which will make them come again or refer their friends or relatives to the firm. Professionalism is not observed to the later considering the number of financial scandals that have resulted in clients being reaped off their hard-earned cash through sham investments. Consumers of financial services are entitled to being provided with full information that will help them make sound financial planning and investment. Ethical behavior and professionalism has to be observed to avoid situations where clients are duped into making wrong investment decisions that will haunt them for the rest of their lives (Pearson, 2009). Many scandals have happened in Australia with regard to financial service provided by advisors in the financial sector. Some of these cases have led to loss of millions in dollars of investors’ hard-earned savings. Issues of professionalism in financial service industry have been largely blamed for the mayhem that has caused havoc in the financial service industry. The case at Macquarie Group highlights some of the fundamental professional issues in financial services industry in Australia. Seemingly stockbrokers employed at Macquarie Group’s personal investment advisory business were sloppy in their paperwork to the extent that their engagement with private clients was below the best practice expected. The practice looked harmless to compel the head of banking and financial services to indicate the shortcoming to the knowledge of Australian Securities and Investment Commission (ASIC) when they were first realized in 2008 (Kehoe & Thompson, 2013). The management believed that the issues could be sorted out without calling for the attention of the public or the regulator. However, whatever seemed to be a just a case of corporate carelessness orchestrated public punishment by the regulator and widespread negative publicity concerning Macquarie’s serous and numerous breaches of the rules designed for protection of the investing public. Stockbrokers who had been regarded as advisers by ASIC were unable, repeatedly, to keep records of advice given to clients and what led to that advice. Macquarie had no records whether the client were sophisticated investors with the capacity to interpret complex financial advice or not. Many stockbrokers employed at Macquarie Private Wealth seem to have thumbed their nose at their obligations. They put the interest of the organization ahead of the interests of the clients. They focused majorly on making commissions from clients time spent on paperwork and compliance is time spent drumming up business. Macquarie faced charges from ASIC for failing to correct compliance deficiencies that involved several of its advisers offering financial advice to retail clients. Macquarie failed to report these deficiencies as required by the law. A more gross misconduct is the fact that Macquarie engaged the services of one of the biggest accounting firm in Australia, Ernst & Young, to gloss over compliance deficiencies. Ernst & Young was asked in the mid 2010 to offer a second opinion on the compliance behavior advisers at Macquarie Private Wealth (Kehoe & Thompson, 2013). Over eighty percent of advisers at the company breached their financial advice obligations. After being conducted Ernst & Young advised Macquarie not to report the problem to ASIC. ASIC found Macquarie in breach of its financial service provision obligation since the financial services provided may not be fair, honest, and efficient. The advisers did not investigate the financial circumstances of the client and kept records of the statements of the financial advice provided. Macquarie Private Wealth is one of the largest advisory and stock-broking businesses in Australia targeting wealthy clients who have millions of dollars in investable assets. The fundamental issue of professionalism is the manner in which advisers interacted with their clients and the kind of advice that they offered to these clients. Such a scandal brings into sharp focus the issue of professionalism in the financial service industry (Kehoe & Thompson, 2013). Are the clients getting the best service that they hope for like in the case of Macquarie Private Wealth? It goes without saying that in most cases the interests of the organization are valued more than the welfare of the clients to sustain the existence of the company. Clients should be treated in the right manner and offered the best services that they desire. Clients trust the financial service provided and hope that they are treated with the uttermost concern and respect as possible. It is unfortunate that this was not the case in Macquarie saga and some clients may have received advice that is not fit for their investable assets. This trend jeopardizes the capacity of the clients to invest in profitable ventures with minimum risk. The financial advisers have an obligation to provide advice that is satisfactory to their clients. In this case, the stockbrokers entrusted with this responsibility were busy thinking about the commission that they were generating for the company and they totally shelved their obligations to the clients. The clients’ welfare has to come first before anything else in financial advising. This is not the only case where professionalism of financial service industry has been put to question. The Viewpoint promissory notes case where millions of dollars were lost by investors is still fresh in the memory of many Australians (Tulder & van der Zwart, 2005). How can such scandals prevail amidst regulation and supervision from the government agencies? It is regrettable that in the Viewpoint case, investors were duped into buying promissory notes that made them to incur colossal losses. b) Critique of the government, regulators, consumer and industry to professional issues financial service It is very sad to note that not enough has been invested to ensure that clients get the best service in the financial service industry. In case of a scandal that leads to clients being affected, the government, regulators, consumers and industry response have all a role to play in making the situation to be the way it is. In the case of Macquarie Private Wealth, a regular audit of their services by the regulator in the industry should have revealed a breach of conduct of financial advisers who were careless and might have provided flimsy financial advice to gullible clients. The stockbrokers entrusted with the responsibility of financial advisors played their role so casually that they did not see the need of establishing the type of clients they were serving. Moreover, they could not recall the basis on which they provided the financial advice (Knapp, 2011). Whether the clients were sophisticated to understand financial complexities was not the concern of these brokers. Surely professionalism was not observed and the financial advisers are to blame should any of the client’s loss his millions in investments that backfire. The welfare of the clients was not considered and instead the employees in the name of financial advisers were busy making money in form of commission to the company and perhaps eager waiting for their own cut in the deal. It was risky for the company to act in this manner when it knows that it serves wealthy clients in the country with millions of investible properties. The consumer does not have to feign ignorance in the whole process of being advised. Personally did understand what basis was used to provide for him alternatives for his investments? He cannot nod to anything without being convinced beyond any doubt that it is the right thing to do. The consumer has also to have basic knowledge about the subject and whatever he is seeking from financial adviser is technical know-how on how to tell the best alternative from the option provided (Tulder & van der Zwart, 2005). The regulator may not be quick to detect the breach of conduct by the financial adviser but the consumer himself should be able to know when he is being misled. In the midst of this confusion where was the regulator? This means that the regulator has a weak monitoring system that does not detect anomalies in time or when they have already cause harm to the client and the firm. ASIC has to be the watch dog for clients and should point out breaches in conduct as soon as it happens. There was a conspiracy by Ernst & Young accounting firm and Macquarie Private Wealth to conceal the breach in conduct in offering financial service. ASIC has not taken adequate measures to ensure that such an incident does not happen. 300 stockbrokers were employed by Macquarie as compared to about forty to fifty financial adviser specialists in the firm (Jones, 2011). Stockbrokers are involved in sale of shares and execution of trade and this is undisputed. It is upon the regulator to ensure that stockbrokers do not play the role of financial advisers which they cannot successfully execute due to their training background. In Macquarie case it was found out that it was the stockbrokers who were culprits of non-compliance but financial planners and advisers provided information as required by law. It was an industry source that gave the tip-off to ASIC. The industry response to such cases has to be swift to avert further damage and whistle-blowing has to be encouraged. It is upon practitioners in the financial service industry to come together and decide to guard the reputations of the industry by blacklisting people or firms that breach the law and regulations in providing advice to investors. The government has a big role to play through enacting rules that ensures that clients are according high quality service by financial advisers and planners. Stiff penalties have to be recommended through law to those people found in breach of their conduct while interacting with the client. Prosecuting perpetrators of unscrupulous practices will help in instilling disciple within the financial service industry. Every stakeholder has an obligation towards ensuring professionalism is observed in providing financial advisory services to clients. References Jones, M., 2011, Creative Accounting, Fraud and International Accounting Scandals, John Wiley & Sons, Melbourne. Kehoe, J. & Thompson, S., 2013, Inside Story: The mess Macquarie Made, Financial Review, retrieved from http://www.afr.com/p/national/inside_story_the_mess_macquarie_oOjQYHe2QuY5ApRUJNX7mL on 25th May 2013. Knapp, M.C., 2011, Contemporary Auditing: Real Issues and Cases, Cengage Learning, New York. Pearson, G., 2009, Financial Services Law and Compliance in Australia, Cambridge University Press. Tulder, R., & van der Zwart, A., 2005, International Business-Society Management: Linking Corporate Responsibility and Globalization, Routledge, London. Read More