Conflicts of Interest
I was updating our Conflicts of Interest policy today and it got me thinking of how the financial advisors compare to other industries when it comes to conflicts of interest. First of all, I’ll start by outlining our own policy.
Bluewater’s potential conflicts of interest
- We may receive commission from a provider which business is placed with.
- We may receive corporate hospitality from companies who we give business to. These are typically lunches after a conference or an occasional night out. It is policy not to accept any overnight trips whether in Ireland or abroad.
How we mitigate these potential conflicts of interest
- We do not not receive any inducements from a provider other than the standard commission or fee. For example, we do not receive any payments for placing large volumes of business with any one provider.
- We disclose all fees and that we may receive from a product provider in our Reasons Why
statement. We always go through this statement with you and highlight the charges.
- We complete a full factfind with clients.
- We carry out regular analysis of the market to ensure that the most appropriate products are recommended to our clients.
- We provide advice that is based on a clients needs and not the commissions that can be earned.
- Where an unavoidable conflict of interest arises, the conflict of interest will be disclosed to the client and the client must acknowledge in writing that they are happy to proceed.
How does this compare to other industries
Something that is thrown at financial advisors all the time is that we don’t get paid for the advice, we get paid for the product i.e. I have to sell you something to get paid. This can be true if you talk to an advisor who only gets paid by commission and can’t/ won’t charge you a fee.
But when someone comes to talk to me, they usually have a specific financial need that can result in a product. If the best interest of the client is to do nothing (a common occurrence is people looking to invest money that they want to use for a house deposit in 12-24 months time), they pay a fee for the consultation. Is this unusual?
If you go to an optician, it is usually because you have an issue with your eyesight. If it is fine, you pay for the eye test. If you need glasses, they will direct you to the range of glasses they have and they will assist you in picking out a pair. If you drop your car into a garage for a check-up and the mechanic he tells you you need a new clutch, you are going to get him to get the parts for you and fit them, at an additional cost plus a mark-up on the parts bought.
Are doctors the exception to the rule?
The example that gets used when discussing conflicts of interest is that of the GP. You go to the doctor, they charge you for their diagnoses (which people moan about anyway because they think they are paying for the doctors time and not their expertise) and write a prescription that is filled by a pharmacist, so they don’t charge for advice and product.
A doctor is an expert in medicine, they are not experts in medication though, a pharmacist is. Some of these medications are extremely powerful and a mistake can lead to death, so there needs to be some form of check mechanism in place. The consequences of not having one is too great.
And as we have seen with the opioid crisis in the the US, there were lots of cases of doctors who were prescribing powerful painkillers to whoever would pay them $200 cash for a consultation. In many of these cases, it was the pharmacist asking questions that got these doctors shut down.
In any business, there will always be some form of conflict; it is how it is managed that is important. If an advisor is unclear on charges or doesn’t disclose them all, that is where the problem starts.
What do you think? Let me know by sending me an email to [email protected]
22 January 2018