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Would having all financial professionals take the Banking and Financial Services Oath be an antidote to the ethical problems uncovered in the Banking Royal Commission?

Friday 5 October, 2018
by Simon Russell
In this article, Simon Russell of Behavioural Finance Australia looks at ways individuals can translate The Banking and Financial Services Oath in to practical terms for themselves, and their teams.

By Simon Russell

Based on psychological research into financial decision-making, my short answer to this question is: “for some people, some of the time, in some contexts.”

What this psychological research suggests is that there are a bunch of important behavioural factors that will influence whether espoused ethical principles are translated into ethical financial decisions and actions. Ultimately, it is these decisions and action that clients trust financial professionals to make on their behalf.

Alone in the dark with clients’ money
In the context of the Royal Commission, conflicted remuneration and incentive structures are currently very topical. Arguably, espousing good ethical principles in the absence of attending to factors like these is like asking a toddler not to eat the chocolate biscuit that you have placed on the table in front of them. The toddler knows they shouldn’t eat it, but as soon as you look away the chocolate biscuit is gone. For the toddler the temptation is simply too great and there is too much opportunity to give into that temptation.

As adults the temptations might be different, but at a neurological level the challenges of not giving into them are similar. As was noted in the Royal Commission, customers need to be able to trust the decisions that are made on their behalf when their financial service providers are “alone in the dark with [their] money”.

Whose Oath is it anyway?
Conflicted incentive structures are an obvious example of what can cause problems. However, other behavioural considerations can be more subtle, and can often operate beyond our conscious awareness. Despite being subtle, they can have important consequences for people’s decisions and actions. And because they operate beyond our awareness they can be easily overlooked.

One such consideration can be whether we feel a sense of ownership. Research shows that we tend to value more highly those things that we have contributed to directly. This is sometimes referred to as the ‘Ikea effect’. The bedside table we assemble ourselves might not be quite as good as the equivalent one that comes preassembled, but having put the effort into creating it, we value it more.

In contrast to the DIY bedside table, people can often resist things that they have not contributed to, particularly if those things have been imposed on them compulsorily. As a result, in some cases increased regulation, along with some compliance and ethical training have backfired, with the outcome being worse than simply doing nothing.

In summary, if taking the Banking and Financial Services Oath is part of your strategy to help hold yourself and your team to high standards of ethical decision-making, then you’re more likely to achieve that aim if you and your team can in some way contribute to the ethical principles you wish to follow.

A small suggestion
While the Oath is already written, this doesn’t stop you and your team from making a ‘contribution’ to it in your specific context. You do this when you ask what the principles in the Oath mean in tangible terms in the context of the specific types of decisions and actions that you and your team make. For example, what does it mean for you and your team to “serve all interests in good faith” and to “compete with honour”?

The Royal Commission shows that for some financial professionals these fairly broad principles perhaps could have been translated into more tangible and specific terms like this: “this means that we will ensure that we won’t take clients’ money without providing the service for which the money was taken”.

In addition to leveraging the Ikea effect, having a team collaborate to establish these tangible and context-relevant ethical behaviours also aligns with other psychological concepts. Firstly, we tend to feel more committed to standards of behaviour that have been shared with other people than we do to standards that we have committed to only in private. The social context can create a sense of shared accountability.

And secondly, our brains tend to work much better with tangible and directly relevant concepts than with broad and abstract principles like “competing with honour”. In the context of the Oath these terms need to be broad to accommodate a range of scenarios, but in the context of the individual and of the team, they need to be made more specific.

Where to from here?
Behavioural strategies like those discussed above are often powerful, cheap and simple. Researchers have identified numerous psychological concepts that can be applied to better understand and influence people’s behaviour. This research suggests how processes can be changed (such as to make ethical decision-making more easy and automatic), and how information can be reframed (such as to make ethical choices and principles more salient).

Without identifying and using these strategies in your context, ethical principles can simply remain nice words on page. If you want your Oath to be more than this, you should leverage psychological research to help translate these words into decisions, actions and outcomes.


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The Oath

  • Trust is the foundation of my profession.
  • I will serve all interests in good faith.
  • I will compete with honour.
  • I will pursue my ends with ethical restraint.
  • I will help create a sustainable future.
  • I will help create a more just society.
  • I will speak out against wrongdoing and support others who do the same.
  • I will accept responsibility for my actions.
  • In these and all other matters;
    My word is my bond.