It is unfortunately too easy to find trade press reflecting the wrong-doing of an individual or organisation in the financial markets. Should the nature of any indiscretion or activity be measured by degrees, or is it outright fraudulent? Is being ignorant of “Best Interest Duty or Reasonable Basis” any better than knowingly disrespecting this lawful responsibility when a financial adviser?
A recent article was titled “The idea that commissions are not conflicted is akin to the argument that guns don’t kill people“. Having read the article it made sense to me and is clearly consistent with the direction of the industry. Interestingly, in reading to the end, the author represents an association that supports independent advice (and names his individual business also). This is the world of educational/content marketing as a means to an end – in this case to grow their membership and promote his business as a responsible independent service. Arguably, is it not a subtle conflict of interest to write this article as it promotes the association and his business?
Conflict of interest is difficult to avoid. Not just for the financial planning industry & the nature of human behaviour is that people lie.
In fact, a fantastic documentary titled “(Dis)Honesty – the Truth about Lies” (Available on Netflix) is a great depiction of human behaviour. It features individuals sharing their stories on the outcomes of their lies (at the time they lied, it was seen in some circumstances as in the best interest of themselves, their family and not hurting anyone else).
People lie to protect themselves, not look foolish, avoid conflict,
to preserve something they have or gain something they want,
boast…….. People who lie are not bad, they’re human.
So why do I draw a correlation between conflict of interest and lying? As the research in the documentary shows, when people see that others are doing it, that they are not supposedly disadvantaging someone else, then people normalise the behaviour and justify it’s OK.
People normalise the behaviour & justify that it’s OK.
If everyone overestimates deductions in their tax return why shouldn’t I? Insider trading is being done by others around me, they’re succeeding and not being caught then why shouldn’t I?
As long as the industry mandates that commissions are not conflicting to the advice delivered then many advisers won’t see it as an issue. If commissions were completely abolished, will that get rid of all conflict of interest? No.
I’m an advocate for a well educated advice driven profession and I’m also an advocate for not crucifying the industry whilst moving in this direction.
So why did I write this article? Aren’t I a hypocrite as I work in an industry that is commission driven?
I believe the recruitment industry needs to change also. Yes, this is content marketing no different to the article I refer to earlier. Am I conflicted by writing this….YES.
I wonder in a commercial world how we cannot be.
Below is a quote from a respected experienced CEO within the financial services industry.
“The reality is that as soon as you charge a fee you potentially have a conflict. Hourly rates? conflicted. You are incentivised to go as slow as possible and to over-service. Commission – conflicted. You are incentivised to sell more of a product (product A versus product B). Is a flat rate of commission on all products less conflicted? Yes. Asset based fees are conflicted in one way, but aligned in others. Flat dollar fee – conflicted (although the conflict is probably limited to the amount and the scope of work – you are still incentivised to scope the work as broadly as possible and then to under-service). Incentives definitely matter, and they matter big time. The answer is disclosure (do people know what they’re paying), a professional approach (from advisers), a less paternal approach of regulators and more and more education of consumers/investors. There is no perfect model, perfect answer, risk free advice industry – we’re all human. If we’re expecting a 100% scandal-free, risk-free, fraud-free, dishonesty-free future, we’re dreaming”.
If we’re expecting a scandal-free, risk-free, fraud-free, dishonesty-free future, we’re dreaming.
We need to dream and visualise how we can become better at what we do. It’s about sharing, learning, being challenged and evolving. It’s about who we are and how we manage the conflicts in delivery of that service. I encourage you to watch the documentary (Dis) Honesty – The truth about Lies (and no, I don’t receive a commission if you do )