The lender and possibly the solicitor about the error

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

To ensure ethics is a priority, organisations often choose to apply ethical decision-making frameworks throughout their managerial processes.

Ethical frameworks are developed to ensure that the implementation actions of an organisation uphold its ethics. Frameworks highlight key aspects and principles of ethical solutions, as opposed to policies & procedures which focus more on step-by-step processes.

• The Virtue Framework
• The Duty Framework
• The Consequentialist Framework

The Virtue Framework

The duty framework puts aside one’s own thoughts and experience, to highlight and consider their duties, responsibilities, and obligations in a specific situation. Ethical conduct (doing the right thing) must prevail at all times. This allows the creation of rules that are consistent with the expectations and permits to treat everyone with the same moral rules and equal dignity and respect, regardless of the outcome. For example, in a given situation if a duty is required, then it would apply to anyone in this situation, even if the effect is not in their favour.

This framework is considered to be working best in an environment with a high sense of obligation and duty mandates. However, it has its limitations: applying a duty regardless of personal situation, which might produce harm, can be seen as cold, impersonal or rigid, even if the initial though is to keep to a particular ethics rule.

Figure 1 Source:

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

• Autonomy: all persons have intrinsic and unconditional worth, and therefore, should have the power to make rational decisions and moral choices, and each should be allowed to exercise his or her capacity for self-determination.

• Justice: the treatment of persons should be fair, equitable and appropriate.

Bank of Sydney produce a one-page (also available in your learner resources).

The MFAA has developed a course in ethics (MFAA’s Foundation course in ethics) that members can take to ‘help in modelling ethical professionalism within the finance broking industry’.

Aggregators have developed their Code of Ethics to which all broker members must stick to:

Figure 2 Source:

The following situation comes from the BFO website and illustrates how to assist in making ethical decisions:

expressed by evaluating a particular entity with some degree of favour or disfavour’.

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

Firstly, a direct personal experience has a major impact on attitude. Social norms also have a major influence on attitudes: what attitude is considered to be acceptable, known as the ‘norm’ of the society, in a particular context. Observation is another direct factor of influence that can be seen in children replicating their parents’ attitudes. These factors may be unique and difficult to mould.

Another factor that is widely used by professionals to influence the decision-making of stakeholders is by creating biases: the conditioning.

The set of predictable mental errors that arise from a limited ability to process information objectively is known as cognitive bias.

Cognitive bias is the tendency to make decisions caused by values, memory or socialisation and influences stakeholders in their decision making which may result in illogical or irrational decisions or misjudgement.

earn more about cognitive biases: From

An important component of cognitive bias is conditioning.

Watch this video about the Skinner box experiment to learn more about operant conditioning.

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

Watch this video to learn more about classical conditioning:

Figure 4 Source:

Example of advertising bias:

There are legal obligations in Australia when advertising Financial Products & Services which is closely monitored by ASIC. This prevents false, misleading, or deceptive representations and ensure all warnings, disclaimers and qualifications are not inconsistent with other content of the advertisement.

PLUS ethical model

S = Self: Am I personally satisfied that the decision meets what is right, fair and ethical?

Even if the PLUS process does not guarantee the success of a decision, it helps prevent obvious unethical components, and may assist the decision makers to reconsider a situation.

Justice

Principles of justice can also be used in ethical situations, but this requires fairness, equity and impartiality on the part of decision makers.

The main objective of the second obligation, listed above, was to reduce the potential for conflicts of interest, which had been a significant issue within the industry.

It is called the Conflict Priority Rule and is define by ASIC as below:

In its ASIC highlights a number of scenarios with potential breacements and offers commentaries on how the mortgage broker is expected to identify the potential issues and address the situation. A few examples are given below.

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

Let’s take a closer look at ethical lending

Ethical lenders may choose not to lend or invest in fossil fuel projects or mining industry related ventures. They may not want to support and get involved in weapons manufacture, tobacco companies, gambling etc…

exposes the big brands which rejected their association with greyhound their ads were programmed during a pro-dog racing television broadcast.

Some websites such as ‘ and have taken a proactive approach to etlistin

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

1.5 Evaluate impact on organisation’s reputation if response to situation was in the public domain

Reputational crisis

According to lawinsider.com, ‘Reputational Crisis means a decrease in reputational standing which has been caused by the publication or disclosure of a Claim covered by this policy as objectively evidenced, by media reports, publicly available data or other publicly available third-party data.’

Figure 7 Source

How to assess the impact of a repu

market when people sell their stock upon a company’s reputational crisis.’

Source:

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

There are numerous stakeholders in the finance industry, but the key ones for a mortgage broker are:

• Organisation’s shareholders
• Employees
• Customers
• Aggregators
• Lenders & Banks
• Industry Bodies
• Regulators & Government
• Other professionals (Solicitors, Accountants, financial planners, real estate agents…)

An EIA is usually a five steps process:

1. Threshold analysis: The severity of the ethical dilemma is considered. If the matter is deemed serious enough then an EIA is needed
2. Scope definition: It is crucial to determine what needs to be covered in the assessment and what needs to be reported
3. Report Preparation: The EIA and development application should be publicised to allow interested parties to give their opinions
4. Notice decision: the authority will use the report and input from interested parties in order to make a decision. This decision will be published.

Paul recently passed his Diploma in Finance and Mortgage Broking and has enrolled a two-years mentoring program as per industry requirements. He has settled a couple of applications thus far, however his mentor spotted an error in his brokerage commission. The quote provided to the clients mentioned an amount of $750 while according to the mortgage broking firm policy, should have been $650. This error does not impact the application which is booked for settlement the following day. The quote was accepted and executed by the clients and the amount is to be deducted from the loan amount at settlement.

As developed in 1.1 – Analyse the context of the situation and identify ethical principles that may apply – different frameworks can be used to determine the preferred course of action.

2.3 Identify situational and psychological barriers impeding the analysis of, and response to, ethical situation

Barriers to ethical decisions exist, and there are many of them. They can be situational or psychological and may even obstruct the analysis of an ethical situation and/or the response to be provided.

Many studies (Alter 2013, Gino 2013, Lieberman 2013) show that transparency is also a factor that greatly affects the analysis of ethical situations, as well as the actions to be taken to respond to them. The expression ‘integrity is doing the right thing, even when no one is watching’ is well-known however, not often followed.

Finally, the environment plays a role in an ethical situation analysis and affects directly the response: people tend to act more ethically in a well-lit, clean room, than in a poor-lit and dirty room.

2.4 Seek advice on proposed actions from trusted adviser in the case of highly complex or sensitive matters

It is always recommended (and considered best practice) to seek advice from a trusted adviser for a more complex or sensitive situation.

There is also training, webinar, meetings and professional development events created on an ongoing basis by industry stakeholders. These are a great source of inspiration and a lot of industry information and advice may be attained by very experienced people.

Industry bodies such as the FBAA and MFAA are also available to help regarding ethical matters via their codes of conduct/codes of practice.

People with psychological and/or situational barriers will often fail to see the moral dimensions of given situations or will have a distorted vision of them. A number of strategies and processes exist to improve the response in this context, and include the following:

• The number one strategy in all cases should be to stay alert to the impact of the actions taken on stakeholders. It is crucial to increase the awareness by taking on as many stakeholders’ perceptions as possible.

While ‘shark attacks’ seem to be the most obvious answer due to pre-existing information (i.e. everyone has heard of deadly shark attacks on the news), the surprising answer is that people are 30 time more likely to die from a piece of falling airplane debris.

Being able to identify situational circumstances that could potentially affect the ability to ethically respond in the correct way, helps to be more mindful of the effect of the environment. Some predispositions to misdirection that a particular situation can trigger must be identified for this strategy to be effective.

3. Develop implementation plan and carry out ethical response to situation

3.1 Develop an implementation plan for ethical response

One of the most important rules when developing a plan is to determine the scope for implementation and assign the work to individual(s) or team(s) whilst ensuring key stakeholders are involved. This allows the creation of a better flow of information and communication and establishes clear responsibilities over the tasks to be completed.

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

The RACI matrix is a simple and effective way to assign tasks and roles to participants in an organised and easy to understand manner. It is a popular tool for project managers.

Responsible: indicates who is in charge of completing the task.

Figure 10 Source:

The following is extract from ‘Overcoming obstacles to ethical behaviour’ (also available in the learner resources):

Rationalising ourselves out of good moral decision-making

• It is all for a good cause.

• I was just doing it for someone else’s sake.

• I deserve it.

To overcome this obstacle

1. We tend to miscalculate the negative consequences of our behaviour and the risks involved.

2.We create inaccurate judgments about causal perceptions.

Biases about other people

1. Through ethnocentrism and stereotyping, we inaccurately believe that our values and beliefs are superior to those of a different group.

3. Overconfidence in our abilities causes us to overestimate our ethical behaviours.

To overcome this obstacle

Before a final decision is made, it is a good idea to create a proposal of how the organisation plans on dealing with the situation, especially when the decision will impact the stakeholders.

The proposal may acknowledge the risks and concerns raised by stakeholders at the consultation stage and explain how the proposed decision is mitigating such risks. At no point should the stakeholders feel judged on their values.

3.4 Implement planned ethical response independently or with the support of colleagues, as required

Without implementation, a plan is only a plan. Without actions, no steps are taken to change the situation.

Decisions often need to be implemented by the Human Resources team, to ensure all legal issues are observed and complied with.

Human Resources play an important role in an organisation’s life: they shape, maintain, communicate codes of conduct, work both on employee’s welfare and profit maximization (which often conflict). They focus on helping the organisation to live up to their ethical values, assess candidates who match with the organisation and ensure stakeholders participation facilitation.

Some factors are easier to measure than others. e.g. is would be difficult to precisely measure trust and integrity.

Stakeholders have a key participation in the decision evaluation process, as they are in the front line. Their observations and feedback are the most valuable factors to evaluate the outcomes of an ethical situation’s response, so it is important to keep the entire communication process open and transparent.

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

taken which may be perceived as being more fair/ethical/in line with the values of the organisation?

Read the ‘Ethics of downsizing’ article available in your learner resources.

Sometimes, the impacts of a decision can be determined by using different measurement methods. A typical decision measurement helps organizations in setting targets and providing the essential feedback to managers on the progress made in relation to the targeted goals. Sometimes, consequences are hardly measurable. This might be the case for determining the emotion or psychological impacts for example (level of respect and esteem).

Indirect measurement techniques allow us to measure factors within an organisations culture. An ‘Implicit Association Test’ (IAT) measures the strength of associations

FNSINC514 – Apply ethical frameworks and principles to make and act upon decisions Student Learner Guide

These measurement tools can only be used for data that exists and can be mathematically calculated. They are the most reliable measurement tools but do not take into consideration any emotional or psychological factors. Objective data and quantitative measurement techniques include for example the organisation profits analysis, performance analysis, staff turnover, customer ratings etc…

4.3 Analyse what the outcomes of the course of action reveal about own and organisational values

Employees’ behaviour should reflect the values of the organisation. If the values do not resonate with employees or reflect ethical culture, then it is likely that employees will be demotivated and that leaders will lose credibility.

If an employee does not adhere to the organisation’s values and ethics, it will be revealed by the outcome of their decision and will need to be managed by the organisation according to the HR policies.

Watch this video about ‘Ethical cultures & Ethical Leadership’

To better respond to future ethical situations, the processes, policies, and procedures need to be genuinely and constantly reviewed for improvements.

Indeed, it is important that the policies and procedures are reviewed and adapted as soon as practicable when an ethical situation is encountered. This will allow to improve the existing approach and provide a clearer framework to better respond to future similar dilemmas.