FPC002B - Ethics and Professionalism in Financial Advice - Alpha Omega Financial Group Case Study - Finance Assessment Answer

FPC002B: Ethics and Professionalism in Financial Advice Assessment Answer

Assessment Task:

Scenario 1
Your first meeting is with Jim Gardener. The file you have selected to review is for a couple who are typical clients for Jim. You see from the electronic file in the customer management system (CRM) that Dino Salerno is the owner of a very successful chain of Italian restaurants and has been a client of Jim’s since he started the practice. Together with his wife, Phoebe, they have large superannuation and investment portfolios, along with substantial insurances. Their last ongoing advice meeting was
two months ago when their portfolios were reviewed and rebalanced in line with their risk profiles. However, there is a record of a phone message from Dino for Jim to call him back and a calendar entry that indicates Jim met with Dino in the last week — but there is no indication of what was discussed.

You ask Jim to tell you about the couple and mention the phone call and meeting with Dino.
Jim pauses before replying:
Ah, yes — Dino. I know the CRM should have been updated but it’s a very difficult situation and I’m actually not sure what to do which is frankly why I haven’t made a file note yet. Davi has been on leave, so I couldn’t have done anything about it anyway. Dino’s one of my oldest clients and treats me like one of his family. Without his referrals, I wouldn’t have the business I do today. And I get along very well with Phoebe — Dino married her seven years ago after his
first wife, Maria, died.

About the phone call… I rang Dino back straight away and he asked to meet with me on his own and not to let Phoebe know. He asked me to meet him at a restaurant a long way from his home and my office, which I thought was odd. He told me he’d been having tests for quite a while and had just been diagnosed with dementia. I asked him what stage it was at and whether Phoebe knew. He said he’d been to see his lawyer and, based on the doctor’s diagnosis, he could not assist him to execute an Enduring Power of Attorney or change his Will. Dino said to me, ‘The business is owned by the family trust, so it’s all going to go to my kids with Maria. However, I always intended my super and life insurance to go to Phoebe. I know you kept at me for years to fix up the paperwork and probably gave up on me, but Jim, I want to fix it up now. The kids and Phoebe don’t get along at all — I can only imagine the trouble they’ll cause when I’m gone. Can you get the forms ready and I’ll sign them now?
You can see for yourself I’m my usual self, and no one will ever know if we backdate them. I’ll tell Phoebe about my condition when this is sorted out. You’re my only hope.’

Question 1

LO1: Explain the role of ethical frameworks and professional standards within the financial planning profession.

LO2: Assess the impacts of cognitive, judgement and decision biases on financial advisers and their clients.

LO3: Demonstrate an understanding of professional obligations and conduct required by the values and standards of the FASEA Code of Ethics.

LO4: Identify and solve ethical dilemmas encountered as a financial adviser through application of ethical frameworks and professional standards.
(a) Discuss the issues raised by this scenario in relation to:

(i) a relevant barrier to ethical decision making which may be influencing Dino 

(ii) how Standards 1, 2 and 3 of the FASEA Code of Ethics apply to this situation 

(iii) the application of the value of Honesty to this scenario. 

(b) In view of your analysis, how should Jim respond to Dino?

Scenario 2
Your next meeting is with Carly Green. She has a meeting scheduled with an existing client, Simone Philips. Simone, 35, recently attended one of Carly’s ‘Financial Security for Women’ seminars and is very keen to get advice from Carly as a result of changed circumstances. Davi has entered Simone’s details into the CRM,
which you note indicate she is married and a homemaker with one child.

You also note from the records that Simone is an existing client with some super and insurance products, and is the sister of one of Carly’s wealthiest clients, Max Hall. Simone has recently divorced and received a settlement which was intended to purchase a home for herself and her two young children. However,
inspired by what she heard during the workshop, she has indicated she wants to continue renting and instead invest the funds, potentially some into a self-managed super fund. You ask Carly about the upcoming meeting with Simone.

I’ve been advising Max for several years. He’s a brilliant medical specialist and has a highly successful practice. He also has a very happy and stable marriage and has raised four very talented kids. Simone is his younger sister and I think has always been quite jealous of Max’s success in life. He has tried to help her but as she doesn’t want to take his advice, he asked me to see what I could do. After her marriage to a doctor broke up, Max gave her a job in his practice looking after patient appointments and records. I got her set up with a regular savings plan and sorted out her personal insurances and superannuation. I did not charge fully for the time I spent on her case as she could not afford it — my intention was to have Sam take over advising her on these when she’s completed her provisional year. I do have reservations, though, as Simone is a pretty strong personality and while Sam is technically great, she has more to learn about managing client expectations. I’m concerned that Simone sees this money from the settlement as a shortcut to getting the life Max has. It was difficult to help her to get her budget under control and though she only has a little super, she wanted to invest it much more aggressively than her risk profile would indicate. I’m going to meet with her to understand what she wants to do. Sure, if she invested the
money, it would be a significant portfolio and I would be able to add a lot of value in advising Simone on it. I could also easily justify charging her my normal rate. But my honest belief is she would be better off using the funds to buy a home for herself and her kids.

Question 2
LO1: Explain the role of ethical frameworks and professional standards within the financial planning profession.

LO2: Assess the impacts of cognitive, judgment and decision biases on financial advisers and their clients.

LO3: Demonstrate an understanding of professional obligations and conduct required by the values and standards of the FASEA Code of Ethics.

LO4: Identify and solve ethical dilemmas encountered as a financial adviser through application of ethical frameworks and professional standards.
(a) Discuss the issues raised by this scenario in relation to:

(i) the ethical dilemma facing Carly

(ii) how Standards 4, 5 and 6 of the FASEA Code of Ethics apply to this situation 

(iii) the application of the value of Fairness to this scenario. 

(b) Using one (1) relevant professional framework (such as the FPA or AFA Code), recommend how Carly should resolve this dilemma.

Scenario 3
Your last meeting is with Chris Wilkins. Chris initially advised Emilio and Rosa Sanchez eight years ago when he was with a different licensee group. Last year Emilio contacted Chris, saying they were unhappy with the service they were getting and wanted Chris to be their adviser again. The electronic records show that Chris
provided them with advice to switch their superannuation and insurance to products which were on GGFS’s approved products list. The product replacement research showed that the recommended superannuation products would be significantly cheaper than their existing products, which would also be a benefit when they converted them into retirement income streams in 10 years. It also showed that the insurance benefits and premiums in the replacement products were broadly comparable with their existing products. The records show that Emilio accepted the revised insurance terms but there is no file note of Chris discussing this with Emilio.

You ask Chris to tell you more about these clients and the advice provided. Emilio and Rosa contacted me out of the blue last year asking for an appointment.
They said they were really unhappy with the turnover of advisers at my previous licensee since I left. They were paying ongoing advice fees but didn’t feel they were getting any value for those ongoing fees. I explained to them that I would be happy to meet with them and would waive my normal initial consultation fee. I did let them know I now charge fees rather than commissions so the cost of my advice would likely be much higher than previously. They still wanted to go ahead, as they were adamant they wanted me to be their adviser and felt that even if my fees were higher, they could actually trust me.

In regard to their super and insurances, Emilio had always been in excellent health and very fit, so I was surprised when his insurance offer came back with a loading. I did speak to Emilio about it and as he knew that his fund earnings plus super contributions would more than cover the premiums, he went ahead with setting up the new super fund and insurance. That was a good thing as Davi had already started the rollovers. There should be more paperwork on this file — I’ll have to check with Davi as he mentioned we may have temporarily lost some records when our IT company’s server went down.

Question 3
LO1: Explain the role of ethical frameworks and professional standards within the financial planning profession.

LO3: Demonstrate an understanding of professional obligations and conduct required by the values and standards of the FASEA Code of Ethics.

(a) Discuss the issues raised by this scenario in relation to:

(i) a relevant barrier to ethical decision making which may be influencing Chris

(ii) how Standards 7 and 9 of the FASEA Code of Ethics apply to this situation 

(iii) the application of the value of Competence to this scenario. 

(b) Based on your analysis, how has Chris complied with the obligation to obtain informed consent?

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