Ethics and Professional Standards: Frameworks, Conflicts and Conduct
Domain 3 tests ethical decision-making and professional standards. You need to apply ethical frameworks to real conduct, recognise conflicts of interest, protect confidentiality, and understand how codes and conduct rules reinforce good behaviour.
Ethical frameworks
Consequentialism judges actions by outcomes, often seeking the greatest good. Deontology focuses on duties and rules, such as telling the truth regardless of outcome. Virtue ethics asks what a person of good character would do. Professional codes combine these: integrity, objectivity, competence, confidentiality, fairness and compliance with law. The CII Code of Ethics and FCA conduct rules set expectations for individuals, not just firms.
Conflicts and inducements
Identify conflicts, then avoid, manage or disclose them. Disclosure alone is not always enough if the conflict is too great. Inducements must not impair impartiality; commission on advised retail investment products is banned, while protection commission may be paid if disclosed. Gifts and hospitality should be recorded and proportionate. Confidentiality means sharing client information only with consent or where law requires, consistent with data protection.
Worked example
An adviser holds shares in a fund provider and recommends that provider's fund. Reasoning: this is a personal conflict. The adviser should disclose it, consider genuinely independent alternatives, document why the recommendation is suitable, and if the conflict cannot be managed, decline to advise. The ethical test is not whether the fund is suitable in isolation, but whether the client's interests were placed first and the process was transparent.
Professional standards
Maintain fitness and propriety, complete CPD, and act honestly. Whistleblowing is protected under the Public Interest Disclosure Act 1998 when qualifying disclosures are made to prescribed persons. Vulnerable customers need extra care and accessible communications. Breaches can lead to FCA enforcement, CII disciplinary action and loss of reputation.
Traps that cost marks
- Equating legal compliance with ethical conduct.
- Believing disclosure always cures a conflict.
- Treating confidentiality as a reason to hide wrongdoing.
- Failing to document the rationale for a recommendation.