The new fiduciary standard for all advising clients on investments will help avoid these conflicts. The question remains, why is the financial services industryso adamant about not following the fiduciary standard?
First, conflicts of interest are generally to be avoided. Why? It’s a simple matter of loyalty. You want to know that the agent you’ve hired to handle your hard-earned savings is exclusively motivated by what’s best for you and not what’s best for him or his firm. Again, conflicts result in real harm. We’re not concerned here with theoretical moral dilemmas. The concerns are improper economic incentives and divisions of loyalty that will cost you. Every financial adviser that admits to a conflict will, in the same breath, tell you that you should not be worried. Already the guy is lying to you. Don’t believe it for a minute. Conflicts are red flagsthat demand your attention. Don’t dismiss your concerns before you’ve even begun to address them.Second, conflicts of interest are to be tolerated only when they are either (1) unavoidable; or (2) the potential rewards outweigh the risks. In my professional experience, when it comes to investment products and services, rarely, if ever, are conflicts unavoidable. You can almost always find another firm with comparable pedigree and performance results that is not subject to the conflict at issue. There are tens of thousands of advisers out there and unless you’re living on a deserted island, seriously consider whether you can get the same product or service without the attendant baggage, i.e. conflict-related risk.
More likely, you may believe that the potential reward (future outperformance) outweighs the potential risk (known conflicts). That may be a valid conclusion but the question is: how did you arrive at it?
Great article. The financial services industry will need to more thoroughly train their representatives on what they sell rather than how to sell more.
Please comment or call to dicuss how this affects you and your financial future.
- Stop trivializing conflict of interest (kevinmd.com)
- Better Late Than Never? Economists Grapple with Conflicts of Interest and Disclosure (scholarlykitchen.sspnet.org)
- Investment firms pulling out all stops against financial adviser rule change (401kplanadvisors.com)