Ethics and Professionalism in Financial Advice

Topic 1: Introduction to ethics, including individual cognitive bias and sources of judgment and decision bias
Ethics and Professionalism in Financial Advice | FPC002B_T1_v2 © Kaplan Higher Education

Contents
Overview…………………………………………………………………………………………………………………….. 1.1
Topic learning outcomes …………………………………………………………………………………………………………. 1.1
1 The ethics of decision making ……………………………………………………………………………….. 1.2
1.1 What is ‘ethics’?………………………………………………………………………………………………………….. 1.2
1.2 Hypotheticals ……………………………………………………………………………………………………………… 1.2
2 Ethical theories ………………………………………………………………………………………………….. 1.4
2.1 Virtue ethics ……………………………………………………………………………………………………………….. 1.4
2.2 Deontological theory……………………………………………………………………………………………………. 1.4
2.3 Teleological theory………………………………………………………………………………………………………. 1.5
3 Barriers to ethical decision making ………………………………………………………………………… 1.7
3.1 Partisanship………………………………………………………………………………………………………………… 1.7
3.2 Rationalisation ……………………………………………………………………………………………………………. 1.9
3.3 Implicit bias/unconscious bias …………………………………………………………………………………….. 1.11
3.4 Ethical blindness………………………………………………………………………………………………………… 1.13
3.5 Ethical fading…………………………………………………………………………………………………………….. 1.14
3.6 Ethical scripts ……………………………………………………………………………………………………………. 1.15
4 Ethical frameworks……………………………………………………………………………………………..1.16
4.1 The consequentialist framework …………………………………………………………………………………. 1.16
4.2 The duty framework…………………………………………………………………………………………………… 1.16
4.3 The virtue framework ………………………………………………………………………………………………… 1.17
Summary…………………………………………………………………………………………………………………….1.18
References ………………………………………………………………………………………………………………….1.19
1.1
Ethics and Professionalism in Financial Advice | FPC002B_T1_v2 © Kaplan Higher Education
‘Nothing is more difficult, and therefore more precious, than to be able to decide.’
(Napoleon Bonaparte, Maxims, 1804)
Overview
The first two topics in this subject provide students with foundation knowledge in ethics and
professionalism respectively, essential to understanding and examining their obligations as
financial advisers under the newly created Financial Adviser Standards and Ethics Authority Ltd
(FASEA) Code of Ethics (which are addressed in Topic 3).
For centuries, scholars, philosophers and professionals have struggled with the concept of ethics.
In attempting to reach a simple definition, general agreement now seems to have been reached that
‘ethics’ falls within the philosophical study of morality. For the purposes of this topic, we will look at
two approaches to understanding ethics: goodness (what ends we ought to pursue) and right action
(the principles of right and wrong).
This topic introduces the concept of ‘ethics’ and its application to financial advisers. We will explore
several schools of thought on how best to conceptualise and understand ‘ethics’, as well as the many
barriers that may exist in preventing people from making ethical decisions. We will do so in the
context of the role of a financial adviser.
We will also look at how financial advisers can apply ethical concepts to their decision making
by unpacking the tension between the rules that apply to them and their own personal values.
This tension can be described as the interface between role morality (the rules, legislation and
employment requirements that impact on advisers) and ordinary morality (the values, beliefs and
norms held by the adviser as a member of the general community).
In order to explore such conduct, it is first necessary to understand the differing schools of thought
about how one should view the impact or outcome of ethical decision making.

Topic learning outcomes
On completing this topic, students should be able to:
• explain the concept of ethics and the role of ethical frameworks within the financial planning
profession
• analyse barriers to ethical decision making
• gauge the implications of certain types of biases upon financial advisers and their clients.
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1 The ethics of decision making
1.1 What is ‘ethics’?
It is difficult to ascribe a single definition to the word ‘ethics’ because ethics means many
different things to different people. At its most basic, ‘ethics’ is, according to the Oxford Dictionary
‘moral principles that govern a person’s behaviour or the conducting of an activity’
or ’the moral correctness of specified conduct’. Ethics is, therefore, about deciding between
good and bad, or right and wrong.
Ethics falls within the school of moral philosophy. According to Thomas Hobbes, ‘moral philosophy
is nothing else but the science of what is good and evil in the conversation and society of mankind’.
(Hobbes 1909–14 [par. 40]).
We all like to think of ourselves as good, ethical people. Research reveals that unethical decisions
are more likely to occur when:
• the person making the decision fails to see the decision as involving any ethical issues, or
• when a person making a decision believes that any ethical issues that can be identified can be
overcome.
This is because people generally believe that they view the world objectively and we ‘see ourselves
as more fair, unbiased, competent, and deserving than average; and to be overconfident about our
abilities and prospects’ (Robbenholt & Sternlight 2013, p. 1116).
1.2 Hypotheticals
Throughout this subject, you will be encouraged and challenged to assess your awareness and
develop your understanding of ethical decision making by examining hypothetical scenarios and
case studies. These can be considered individually or are also suitable for generating discussion
with peer students or colleagues.
Hypotheticals presented throughout this subject cannot be seen as legal advice or a legal
interpretation of compliance with the Financial Planners and Advisers Code of Ethics
(FASEA Code of Ethics). They are designed to challenge you to pose your own thoughts about what
one ought to do under certain circumstances. For this reason, you might even disagree with the
thoughts here or the opinions of others, which can form a great basis for an ethical discussion.
It is important to remember that the FASEA Code of Ethics comes into effect from 1 January 2020
and that further guidance and clarification on the Code will be provided by the regulator. Both the
Financial Planning Association of Australia (FPA) and Association of Financial Advisers (AFA) have
sought further clarification on the interpretation and application of several of the Standards
(particularly regarding Standards 2, 3, 5 and 6). Financial advisers must determine how they will meet
the ethical standards, and begin now to assess how their conduct, business practices, systems and
processes align with the requirements of the Code.
The hypotheticals in the topics are not assessable. However, in your assessments you may be
presented with case studies or scenarios in the form of hypotheticals. Consequently, reviewing these
hypotheticals and taking part in online forum discussions in KapLearn will provide you with valuable
opportunities to apply and test your ethical understanding and thinking.
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We acknowledge that a scenario presented in a course cannot substitute for the ethical decisions you
make every day, and for the fact that those decisions will be exercised under the authority of your
licensee and in the context of their systems and advice expectations, which cannot be anticipated in
presenting this subject.
When interacting with your client, it will be your own ethical response to the Code that will be
questioned and you should apply your best ethical consideration at that time. These hypotheticals
and the course materials and assessments are designed to expand the approach you might take to
understand and apply your ethical duty as described in the Code, but they are not a substitute for
your ‘real-life’ practice.
To get you started, please review the first hypothetical below.

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2 Ethical theories
2.1 Virtue ethics
The difficulty we face in making ethical decisions tends not to be at the extremes of good and bad
or right and wrong, but where our options are in the grey area — where the choice of action may be
just a little more correct or a little more wrong. The great Greek philosopher, Aristotle (384–322 BC),
believed that one became a good person by making good choices. He developed a philosophy he
called ‘phronesis’, or practical wisdom. Aristotle believed that the ability to choose wisely should
emerge from genuine personal reflection about virtues.
Aristotle’s concept of virtue suggests that one should focus on the virtuous character of the
individual. In doing so, one should ask ‘what kind of person should I be in order to be a good person?’
This question is different to the question ‘what is a good action?’ Virtue ethics is therefore
person-based rather than action-based.
Virtue ethics looks at the virtue or moral character of the person carrying out an action, rather than
at ethical duties and rules, or the consequences of particular actions. Virtue ethics not only deals
with the rightness or wrongness of individual actions, it provides guidance as to the sort of
characteristics and behaviours a good person will seek to achieve. In that way, virtue ethics
is concerned with the whole of a person’s life rather than particular episodes or actions.
Virtue theorists posit that there is a common set of virtues all human beings would benefit from,
rather than different sets for different sorts of people, and that these virtues are natural to
mature human beings — even if they are hard to acquire. These virtues are traditionally said
to include the following:
• prudence
• justice
• fortitude
• temperance.
2.2 Deontological theory
While virtue ethicists such as Aristotle focused on self-reflection, other ethicists have focused on
actions. German philosopher Immanuel Kant (1724–1804) believed that certain types of actions
(including murder, theft and lying) were absolutely prohibited, even in cases where the action
would bring about more happiness than the alternative. In other words, we are morally obligated
to act in accordance with a certain set of principles and rules regardless of the outcome of so acting.
This school of thought is formally known as a ‘deontological’ or ‘rule-based theory’.
The word ‘deontological’ comes from the Greek word deon, which means ‘duty’.
Deontological theories hold that some acts are always wrong, even if the act leads to an admirable
outcome. Actions in deontology are therefore always judged independently of their outcome.
An act can be morally bad but may unintentionally lead to a favourable outcome.
Kant’s deontological theory derives from human reason. Kant’s theory is based on his view of the
human being as having the unique capacity for rationality. According to Kant, the moral worth of an
action is determined by the human will, which is the only thing in the world that can be considered
good without qualification. Kant believed that moral principles should be seen as laws that issue
from mankind’s reason. According to Kant, these moral principles should be based in laws,
codes and rules and that the moral principles should be absolute and focused on fairness.
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Kant’s moral principles consist of a set of maxims which he called ‘categorical imperatives’.
There are three formulations of the ‘categorical imperative’. They are as follows:
Act only according to that maxim whereby you can at the same time will that it should
become a universal law. without contradiction.
Act in such a way that you treat humanity, whether in your own person or in the person
of any other, never merely as a means to an end but always at the same time as an end.
Therefore, every rational being must so act as if he were through his maxim always a
legislating member in the universal kingdom of ends.
(Kant 1785 as cited in Shakil 2013)
The first maxim (universality) posits that moral rules should be universal. Kant says that we should
always act in such a way that we would be willing for it to become general law that everyone else
should do the same in the same situation. So, if you are not willing for an ethical rule you claim to be
following to be applied equally to everyone, then that rule is not a valid moral rule. The first maxim is
similar to the golden rule: ‘Do not impose on others what you do not wish for yourself’.
The second maxim (human dignity) posits that moral rules must respect human beings. According to
Kant, people should always be treated as valuable — as an end in themselves — and should not just
be used in order to achieve something else. They should not be tricked, manipulated or bullied into
doing things.
The third maxim (consistency) posits that we ought to act only by maxims that harmonise with a
possible kingdom of ends. In other words, we have a perfect duty not to act by maxims that create
incoherent or impossible states of natural affairs when we attempt to universalise them, and we
have a duty not to act by maxims that lead to unstable or greatly undesirable states of affairs for
all parties involved.
Kant’s ethics is not the only example of deontology; any system involving a clear set of rules is a form
of deontology, which is why some people call it a ‘rule-based theory’. The Ten Commandments is an
example, as is the Universal Declaration of Human Rights.
2.3 Teleological theory
Another school of thought, or theory about ethics, is utilitarianism, whose best-known proponents
are John Stuart Mill (1806–1873) and Jeremy Bentham (1748–1832). Utilitarianism is ‘the moral
theory that an action is morally right if and only if it produces at least as much good (utility) for all
people affected by the action as any alternative action the person could do instead’ (Audi 1999).
In this theory, in contrast to the deontological theory discussed above, answers to questions about
the ends we ought to pursue determine the principles of right and wrong. In other words, the ends
justify the means. This theory is known as a teleological theory. In teleological theories, (moral) right
is derived from a theory of the (non-moral) good, or what is good or desirable as an end to be
achieved. In Greek, ‘telos’ means ‘goal’ or ‘aim’. Moral behaviour is goal-directed or aim-directed.
Hedonism is a variation of the teleological theory which connects the consequences of human
behaviour to the moral concepts of ‘good and bad’, ‘right and wrong’ and ‘moral and immoral’.
The hallmark of most teleological moral theories is that they identify these moral concepts with
pleasure and pain, or happiness and unhappiness. Hence, moral acts are considered good,
right or moral insofar as they lead to pleasurable consequences, and bad, wrong, or immoral
if they lead to painful consequences.
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Utilitarianism and hedonism are examples of ‘consequentialism’. Consequentialism is an
ethical theory that judges whether something is right by what its consequences are. For instance,
most people would agree that lying is wrong. But if telling a lie would help save a person’s life,
consequentialism says it is the right thing to do.
There are of course difficulties with either theory outlined above. For example, how do set rules deal
with ambiguity? If the ends justify the means for the greater good, what about an individual client’s
need to maximise profit, for example by investing in something which produces great harm to the
community?
Each of the above schools of thought, as also described in Figure 1 below, offer a number of
interesting ideologies for financial advisers to consider when dealing with clients ethically, and in
particular the unique relationship between the financial adviser and the client. These ideologies can
assist in making ethical decisions. The next section of this topic will address some of the obstacles
to ethical decision making that can arise.
Figure 1 Ethics schools of thought
Kaplan Financial Limited, 2012.
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3 Barriers to ethical decision making
3.1 Partisanship
It is correct to state that financial advisers can and do play a significant role in their clients’ lives.
It would also be correct to state that the role financial advisers play is akin to that of a doctor.
While a doctor looks after a client’s general health, a financial adviser looks after a client’s
financial health.
The relationship between a financial adviser and a client, similar to a doctor and a patient or even
a lawyer and a client, can be described as being a relationship of ‘partisanship’. The word ‘partisan’
in social psychology is used to describe those who are adherent to, or are aligned with, a specific
‘party, faction, closet, or a person’ (Perlman 2015, p. 1643). The term is most often used in politics
but it can equally be used in describing professional or occupational relationships.
Doctors, for example, become adherent to and aligned with their patients and seek to diagnose
and treat their patients in their patient’s best interests. The partisan relationship of the doctor
and patient is most clearly articulated in the classic version of the Hippocratic Oath, which states
as follows:
I swear by Apollo Physician and Asclepius and Hygieia and Panaceia and all the gods
and goddesses, making them my witnesses, that I will fulfil according to my ability
and judgment this oath and this covenant:
To hold him who has taught me this art as equal to my parents and to live my life in
partnership with him, and if he is in need of money to give him a share of mine, and to
regard his offspring as equal to my brothers in male lineage and to teach them this art —
if they desire to learn it — without fee and covenant; to give a share of precepts and oral
instruction and all the other learning to my sons and to the sons of him who has
instructed me and to pupils who have signed the covenant and have taken an oath
according to the medical law, but no one else.
I will apply dietetic measures for the benefit of the sick according to my ability and
judgment; I will keep them from harm and injustice.
I will neither give a deadly drug to anybody who asked for it, nor will I make a suggestion
to this effect. Similarly I will not give to a woman an abortive remedy. In purity and
holiness I will guard my life and my art.
I will not use the knife, not even on sufferers from stone, but will withdraw in favor
of such men as are engaged in this work.
Whatever houses I may visit, I will come for the benefit of the sick, remaining free of all
intentional injustice, of all mischief and in particular of sexual relations with both female
and male persons, be they free or slaves.
What I may see or hear in the course of the treatment or even outside of the treatment
in regard to the life of men, which on no account one must spread abroad, I will keep to
myself, holding such things shameful to be spoken about.
If I fulfil this oath and do not violate it, may it be granted to me to enjoy life and art,
being honored with fame among all men for all time to come; if I transgress it and swear
falsely, may the opposite of all this be my lot.
I swear to fulfill, to the best of my ability and judgment, this covenant:
I will respect the hard-won scientific gains of those physicians in whose steps I walk,
and gladly share such knowledge as is mine with those who are to follow.
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I will apply, for the benefit of the sick, all measures which are required, avoiding those
twin traps of overtreatment and therapeutic nihilism.
I will remember that there is art to medicine as well as science, and that warmth,
sympathy, and understanding may outweigh the surgeon’s knife or the chemist’s drug.
I will not be ashamed to say “I know not”, nor will I fail to call in my colleagues when the
skills of another are needed for a patient’s recovery.
I will respect the privacy of my patients, for their problems are not disclosed to me that
the world may know. Most especially must I tread with care in matters of life and death.
If it is given me to save a life, all thanks. But it may also be within my power to take a
life; this awesome responsibility must be faced with great humbleness and awareness
of my own frailty. Above all, I must not play at God.
I will remember that I do not treat a fever chart, a cancerous growth, but a sick
human being, whose illness may affect the person’s family and economic stability.
My responsibility includes these related problems, if I am to care adequately for the sick.
I will prevent disease whenever I can, for prevention is preferable to cure.
I will remember that I remain a member of society, with special obligations to all my
fellow human beings, those sound of mind and body as well as the infirm.
If I do not violate this oath, may I enjoy life and art, respected while I live and
remembered with affection thereafter. May I always act so as to preserve the
finest traditions of my calling and may I long experience the joy of healing those
who seek my help.
Similarly, a partisan relationship is also said to arise in the lawyer–client relationship. It is
characterised in that relationship through the concept of acting in the client’s ‘best interests’.
In this relationship, the lawyer is obligated by conduct rules to act in the best interests of their client.
So, when a client instructs a lawyer to do something that the lawyer believes is not in the client’s
best interests, the lawyer is obliged to inform the client that the instructions being provided are not
in the client’s best interests and the lawyer will not so act.
The relationship between a financial adviser and a client is no different. Financial advisers also have
a duty to act in the best interests of their client. The duty to act in a client’s best interests is set out in
section 961 of the Corporations Act 2001 (Cth). The duty requires advisers to act in the best interests
of their retail clients and to place their clients’ interests ahead of their own when developing and
providing personal advice. The duty exists irrespective of whether the adviser is paid for the advice
provided to the client. Failure to satisfy these rules may lead to significant civil and administrative
penalties such as fines, enforceable undertakings or banning from the profession.
While the relationship of partisanship may appear simple and the concept of best interests
uncontroversial, difficulties can arise where the adviser becomes too involved with their client and
has a view that is either unrealistic or possibly not in their client’s best interests. This often occurs
where an adviser loses objectivity.
Interestingly, the danger of losing objectivity increases in organisational settings. For example, in a
recent study, when auditors at major accounting firms were given hypothetical accounting scenarios
and asked to assess the accounting in each situation, they experienced a loss of objectivity.
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In this study, half of the accountants were asked to assume that they were retained by the firm they
were auditing, while the remainder were told to assume they had been hired by an outside investor
who was considering making an investment in the company. In each scenario, the auditors were,
on average, more likely to find that the company’s financial reports complied with generally accepted
accounting principles (GAAP) when they played the role of the company’s accountant than when
they were assigned as the investor’s accountant. The authors of the study reached the following
conclusion:
Participants were placed in partisan roles that gave them a reason to desire a certain
outcome. When asked then to make neutral judgements, they failed to extricate
themselves from the influence of their partisan roles. It was as if, once they had arrived
at a partisan perspective, the justifications for that perspective were readily accessible in
their minds and so held undue sway over subsequent judgements, even when they were
made in the presence of an explicit goal of impartiality.
(Moore, Tanlu & Bazerman, 2010, p. 46)
In this study, we can see that the relationship between the accountant and the client,
when influenced by partisanship, resulted in the accountant adopting the position of the client,
thereby losing objectivity. This is just one obstacle to ethical decision making. There are many more.
3.2 Rationalisation
In addition to the influence of partisanship, the relationship between financial adviser and client
can be influenced by rationalisation and bias. Rationalisation or bias may result in a financial adviser
acting in a manner that is contrary to the client’s best interests and perhaps making unethical
decisions.
Similar to the term ‘ethics’ the term ‘rationalisation’ has a variety of meanings. The Oxford Dictionary
defines ‘rationalisation’ as, inter alia, ‘the action of attempting to explain or justify behaviour or an
attitude with logical reasons, even if these are not appropriate’. In other words, rationalisation is an
invented explanation that hides or denies true motivations, causes or actions. They are the excuses
people give themselves for not living up to their own ethical standards.
Rationalisations can occur often, and often subconsciously. They are the tools we use to explain or
excuse our behaviour. When confronted by an accusation about our poor behaviour, our response
might be ‘I didn’t think it was wrong’, ‘everybody else does it’, ‘I was just following orders’, ‘this is the
way it is done around here’ or ‘no one got hurt’. These rationalisations allow us to ignore or mask
unethical behaviour. Rationalisations are one of the major facilitators of unethical behaviour because
they allow us to act unethically, but still tell ourselves that what we are doing is okay.
Rationalisations are essentially:
• self-serving explanations
• assist in making behaviour appear more acceptable to both self and others
• involve a degree of self-deception
• often occur outside the realm of the conscious mind
• can reduce feelings of responsibility and/or anxiety for the negative aspects of behaviour
• can neutralise the impact of legal or ethical issues involved in a decision.
Rationalisations are therefore a manifestation of self-interest. They show how easily we defer
to self-interest as a means to avoid censure and show ourselves in the best possible light.
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According to Anand, Ashforth and Joshi (2004, pp. 39–53), there are six categories of rationalisation
that are commonly used in business. They are as follows:
1. denial of responsibility (‘I know I shouldn’t do this, but my boss is making me, so it’s not really
my fault.’)
2. denial of injury (‘I know that I shouldn’t do this, but who’s really being hurt?’)
3. denial of victim (‘I know that I shouldn’t do this, but this guy is so stupid that he deserves to get
ripped off.’)
4. social weighing (‘I know that I shouldn’t do this, but my competitors are doing even worse stuff.’)
5. appeal to higher loyalty (‘I know that I shouldn’t do this, but I have a family to feed.’)
6. metaphor of the ledger (‘I know that I shouldn’t do this, but I give a lot of money to charity.’)
The Josephson Institute of Ethics (n.d) lists the following common rationalisations:
If it’s necessary, it’s ethical: This approach often leads to ends-justify-the-means
reasoning and treating non-ethical tasks or goals as moral imperatives.
The false necessity trap: Necessity is an interpretation and not a fact. We tend to fall
into the “false necessity trap” because we overestimate the cost of doing the right thing
and underestimate the cost of failing to do so.
If it’s legal and permissible, it’s proper: This substitutes legal requirements for personal
moral judgement. This alternative does not embrace the full range of ethical obligations,
especially for those involved in upholding the public trust. Ethical people often choose to
do less than what is maximally allowable but more than what is minimally acceptable.
It’s just part of the job: Conscientious people who want to do their jobs well often
compartmentalize ethics into two categories: private and job-related. Fundamentally
decent people may often feel justified doing things at work that they know to be wrong
in other contexts.
It’s for a good cause: This is a seductive rationale that loosens interpretations of
deception, concealment, conflicts of interest, favouritism, and violations of established
rules and procedures.
I was just doing it for you: This rationalization pits values of honesty and respect against
the value of caring and overestimates other people’s desire to be “protected” from the
truth. This is the primary justification for committing “little white lies”.
I’m just fighting fire with fire: This is the false assumption that promise-breaking, lying,
and other kinds of misconduct are justified if they are routinely engaged in by those with
whom you are dealing. This rationale compromises your own integrity.
It doesn’t hurt anyone: This rationalization is used to excuse misconduct when violating ethical
principles so long as no clear and immediate harm is perceived. It treats ethical obligations as
simply factors to be considered in decision-making rather than as ground rules.
Everyone’s doing it: This is a false “safety in numbers” rationale that often confuses
cultural, organizational, or occupational behaviours and customs as ethical norms.
It’s OK if I don’t gain personally: This justifies improper conduct for others or for
institutional purposes.
I’ve got it coming: People who feel overworked and/or underpaid rationalize that minor
“perks” (acceptance of favours, discounts, gratuities, abuse of sick leave, overtime, personal
use of office supplies) are nothing more than fair compensation for services rendered.
I can still be objective: This rationalization ignores the fact that a loss of objectivity always
prevents perception of the loss of objectivity. It also underestimates the subtle ways in
which gratitude, friendship, anticipation of future favours and the like affect judgement.
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Being acutely aware that rationalisations can be a barrier to ethical decision making, and of the type
of rationalisations that can exist is a positive step towards ensuring that decisions about the best
interests of a client are not ethically thwarted.
3.3 Implicit bias/unconscious bias
Implicit bias or unconscious bias is another barrier to ethical decision making. Unconscious bias is a
mental process or shortcut, consisting of attitudes or stereotypes developed over time which impact
on our behaviour and decision making outside of the conscious mind. Unconscious bias exists when
people unconsciously hold attitudes towards others or associate stereotypes with them.
People’s unconscious bias may run counter to their conscious beliefs without realising it and may
affect both financial advisers and their clients.
Research conducted by Australian Industry Group shows that we all hold unconscious biases.
Unconscious biases can impact on how we see other groups, races or culture, how we perceive
ourselves morally superior to others, and most importantly for this topic, the impact unconscious
bias has on our decision making in the workplace.
The psychological study of unconscious biases has identified numerous types of bias.
There are several types that have a particular impact on the workplace. They are as follows:
• Affinity bias: our bias towards ‘someone like me’, for example, in looks, gender,
behavior or background.
• Halo effect: can occur when we see one great thing about a person and therefore think
everything good about them.
• Horns effect: the opposite of the Halo effect when we see one bad thing about a person and
it affects our opinions of their other attributes.
• Perception bias: where we act on stereotypical beliefs of groups of people, e.g. race, gender,
socio-economic background, and apply that belief to individuals of that group.
• Conformity bias: the desire to act like others caused by peer group pressure.
• Confirmation bias: the tendency to seek information that confirms pre-existing beliefs or
assumptions.
• Group think: the tendency to try and ‘fit in’ to a group by agreeing with their thoughts or
positions, and not expressing our own caused by under-confidence and a desire to ‘belong’.
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Other types of bias that can lead to unconscious bias include:
• Self-confidence bias: the tendency to be overconfident about our knowledge or power to control
a situation and be unrealistically optimistic about outcomes
• Under-confidence: the tendency to not believe in ourselves, other people or institutions;
our ethical judgments may be distorted by a sense of futility
• Cognitive distortions: the tendency to distort or replace our ethical judgment with other types of
thinking such as political ideologies or a misplaced or inflated sense of loyalty to our employer or
client
• Status/power: status and power tend to make us feel more entitled and overconfident about our
capabilities. For example, financial advisers may hold or have access to specialist information that
the client may not. This can create a status differential between the adviser and the client which
can result in overconfident and potentially unethical decisions.
• Agency relationship: in an agency relationship between the adviser and client, the agent (adviser)
is a person who acts on behalf of another person, the principal (client). In this relationship the
agent must set aside their own interests in favour of the principal. We may be more willing to
make unethical decisions through and on behalf of others. This occurs when we have an inflated
sense of righteousness of our clients’ positions, over identify with our clients’ interests, want to
win at any cost for our clients and fail to make an independent ethical judgment. Clients may also
be more willing to engage in unethical conduct through their adviser, which they would not
engage in on their own.
• Self-serving bias: the tendency to see things in ways that support our best interests and
pre-existing points of view. This might cause us to unconsciously frame and decide an issue to
accommodate our own goals/interests. For example, financial advisers may find themselves in a
conflict between the interests of the client and the benefits they may receive from offering the
client certain products. The adviser must ask, ‘Does my advice surely serve the needs of my client
or do I shade my advice depending on the structure of a fee schedule?’
Table 1 Examples of bias in the provision of advice

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3.4 Ethical blindness
Many models of (un)ethical decision making assume that people decide rationally and are,
in principle, able to evaluate their decisions from a moral point of view. However, people might
behave unethically without being aware of it.
The term ‘ethical blindness’ is defined as the failure of a decision maker to ‘see’ the moral
components of their behaviour, not because they are morally uneducated or lack good intentions,
but because rationalisation processes remove the ethics from view. In other words, ethical blindness
is ‘the decision-maker’s temporary inability to see the ethical dimension of a decision at stake’
(Palazzo, Krings & Hoffrage 2012).
Ethical blindness can affect anyone at any time. History is littered with thousands of examples of
organisations and their leaders engaging in behaviour that seems to lack moral common sense.
An example of an organisation engaging in ethical blindness is Volkswagen. In September 2015,
the well-respected multinational vehicle manufacturer was charged with intentionally manipulating
emissions software installed in its diesel vehicles (Ferrell et al. 2017). In lab testing, the cars met
US emission standards. On the road, where the defeat device automatically turned off, testing in
some cases showed emissions 35 times higher than allowed. The software recognised when a car
was being tested for emissions in a lab because only two of its four wheels were used, at which point
it activated emissions-controlling devices that would have inhibited performance in on-road
conditions.
In 2014, the defeat devices were discovered. The impact of the discovery was astounding.
Regulators across the world opened investigations, and Volkswagen halted sales of its 2015 models.
The CEO of Volkswagen resigned, senior managers were suspended or put on leave, and Volkswagen
stock plunged in value (Topham et al. 2015).
According to Bazerman and Tenbrunsel (2011), there are five key blind spots that lead to unethical
behaviour. They include:
• Ill-conceived goals: The act of setting goals and incentives to promote a desired behaviour,
but they encourage negative behaviour instead.
• Motivated blindness: The act of overlooking the unethical behaviour of others when it is in
one’s interest to remain ignorant.
• Indirect blindness: The act of holding others accountable for unethical behaviour when it is
carried out by third parties.
• The slippery slope: The act of seeing unethical behaviour occur gradually rather than seeing
it happen actually.
• Overvaluing outcomes: The act of excusing unethical behaviour if the outcome is good.
These blind spots described by Bazerman and Tenbrunsel are set out and further explained
in Table 2.
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Table 2 Ethical blind spots

Source: Bazerman and Tenbrunsel 2011.
3.5 Ethical fading
Ethical fading, similar to ethical blindness, is another barrier to ethical decision making.
Ethical fading refers to the process by which the ethical aspects of a decision tend to disappear from
one’s perception. This can occur where one focuses on different aspects of an issue such as achieving
a successful outcome for a client or perhaps increasing profit generation for the employer. In such
situations, the potentially unethical issues associated with ‘winning at all costs’, overcharging or
over-servicing can arise. The concept of ethical fading was first coined by Ann Tenbrunsel and
David Messick. Tenbrunsel and Messick (2004) used the term ‘ethical fading’ to explain unethical
behaviour in organisational culture. As they wrote:
We introduce the term ‘ethical fading’ to define the process by which the moral colors of
an ethical decision fade into bleached hues that are void of moral implications. If we are
correct, educating individuals on moral principles is only useful when individuals perceive
that the decision has ethical coloration, but useless when ethical fading has occurred or
may occur.
A by-product of ethical fading is moral disengagement. When one morally disengages in the
decision-making process, the ethical aspects of a decision disappear and moral understanding
diminishes. The effect of this phenomenon on conduct is that people tend to become more and
more comfortable with pushing boundaries and validating previous actions even where those actions
were unethical (Moore & Loewenstein 2004).
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3.6 Ethical scripts
An additional barrier to ethical decision making is the impact of ethical scripts on conduct.
An ethical script is defined by Robbennolt and Sternlight (2013) as:
… knowledge structures that guide our understanding of how events typically unfold —
that govern a particular situation and may determine whether or not ethical
considerations are taken into account.
The term ‘script’ is borrowed from psychologists who use the term to refer to procedures that
experience tells us to use in specific situations. For example, when we brush our teeth or
congratulate a friend on the arrival of a new grandchild, we probably use scripts. These scripts are
cognitive processes that we unconsciously use that structure our knowledge into a template to
govern our behaviour and response to particular situations. They can help us deal with complex
situations but they carry the risk that they may mask the ethics of a situation by urging us to follow
a routine that has been followed in the past.
An example of unethical behaviour as a result of scripts is Ford Motor Company’s failure to recall the
Pinto in the 1970s. The Pinto was an automobile with an undetected design flaw that made the
gas tank burst into flames on impact, resulting in the death and disfigurement of scores of victims.
Dennis Gioia, the Ford recall coordinator at the time, reviewed hundreds of accident reports to
detect whether a design flaw was implicated but never found any flaws. Pinto ascribed his behaviour
to having trained himself to respond to prototypical cues. In reflecting upon his own role in the
Ford Pinto case, Gioia asked himself, ‘Why didn’t I see the gravity of the problem and its ethical
overtones?’ (Gioia 1992).
Unlike other forms of experience, scripts are stored in memory in a mechanical or rote fashion.
When we encounter a very familiar situation, rather than actively think about it, we reserve our
mental energy for other purposes and behave as though we are cruising on automatic pilot.
The impact of scripts on conduct can result in people engaging in unethical behaviour because they
have been scripted to do so.
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4 Ethical frameworks
There are three broad frameworks that have been developed to guide ethical decision making:
• the consequentialist framework
• the duty framework
• the virtue framework.
4.1 The consequentialist framework
The consequentialist framework posits that one should focus on the future effects of possible
courses of action and consider the direct or indirect impact or effect of those courses of action
on people. Under this framework, one would ask about desirable outcomes and then deduce
what ethical conduct would be relevant in achieving those outcomes or the best consequences.
This framework allows one to make a decision about whether to engage in a course of action and
whether that course of action will produce the most good.
The consequentialist framework is a pragmatic framework. It is a framework that assists one to make
ethical decisions where there are groups of people, and some of those people may benefit from the
action, while others may not. However, while there are benefits to using this framework, there are
also a number of disadvantages. For example, it can be quite difficult to predict the consequences of
an action, so some actions that are expected to produce good consequences might actually end up
harming people. Additionally, people sometimes react negatively to the use of compromise, which is
an inherent part of this approach, and they recoil from the implication that the end justifies the
means. It also does not include a pronouncement that certain things are always wrong, as even the
most heinous actions may result in a good outcome for some people, and this framework allows for
these actions to then be deemed ethical.
4.2 The duty framework
The duty framework posits that one should focus on the duties and obligations that arise in a given
situation and consider what ethical obligations arise. In doing so one can create a system of rules
that encompasses consistency in expectations. So, if an action is considered to be ethically correct
or a duty is required, the action or duty would apply to every person in a given situation. That is,
everyone is treated equally and with dignity and respect.
However, this framework also has its limitations. Firstly, the duty framework can appear cold and
impersonal, in that it might require actions which are known to produce harms, even though they
are strictly in keeping with a particular moral rule. It also does not provide a way to determine which
duty we should follow if we are presented with a situation in which two or more duties conflict.
It can also be rigid in applying the notion of duty to everyone regardless of personal situation.
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4.3 The virtue framework
The virtue framework posits that one identifies the character traits (either positive or negative)
that might motivate us in a given situation. In this framework, one is concerned with what kind of
individual we should be and what our actions indicate about our character. In the virtue framework,
one would define ethical behaviour as whatever a virtuous person would do in the situation, and one
would seek to develop similar virtues.
The primary advantage of this framework is that it permits a wide range of behaviours to be deemed
ethical. This framework therefore recognises that there might be many different types of good
character and many paths to developing it. Although this framework takes into account a variety
of human experience, it also makes it more difficult to resolve disputes, as there can often be more
disagreement about virtuous traits than ethical actions. Also, because the framework looks at
character, it is not particularly good at helping someone to decide what actions to take in a given
situation or determine the rules that would guide one’s actions. Also, because it emphasises the
importance of role models and education to ethical behaviour, it can sometimes merely reinforce
current cultural norms as the standard of ethical behaviour.
The three frameworks are contrasted in Table 3.
Table 3 Three ethical frameworks

Source: Brown University 2013.
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Summary
This topic has provided a general discussion of the concept of ‘ethics’ and the types of behaviours
that can obstruct a person from acting ethically. In addition, this topic has provided an overview of
different ethical frameworks to assist in ethical decision making. As this topic has revealed, there are
many types of barriers that can impact ethical behaviour. These barriers may arise as a result of a
variety of factors including organisational culture, time pressure and client pressure. Obstacles may
also arise because of a person’s particular personality traits. Knowing how to identify these barriers is
a positive step towards encouraging ethical decision making. Another positive step is engaging in
self-awareness or self-reflection as suggested in the virtue framework for ethical decision making.
One of the best questions one can ask to ensure that one does not engage in unethical behaviour is
simply to ask oneself a reflective question — what kind of a person do you want to be? If the answer
to that question is that you want to be a good person, then the answer will suggest that you want to
act ethically. This question can be used in a variety of different contexts including in the workplace.
For example, a lawyer might ask, ‘What kind of lawyer do I want to be?’ Similarly, a financial adviser
might ask ‘What kind of financial adviser do I want to be?’ To understand how best to answer this
question, it is necessary to understand what kind of person one is.
A simple approach to self-reflection is to ask ourselves questions about our values and perceptions.
The following questions assist in this endeavour:
Values
• What are 10 things that are really important to you?
• What are the three most important things to you?
• What are the values that you hold nearest to your heart?
Perception
• How is the ‘public you’ different from the ‘private you’?
• What do you want people to think and say about you?
• Is it more important to be liked by others or to be yourself? Why?
‘Self-reflection may be the most critical ingredient to making good ethical choices.’
(Bashe 2012)
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