Who pays who for what

14 Jan 10 11:11AM EST
Post by Cecilia Lee
I recently came across an article on the website Money Management, which made me reflect on the ongoing debate about conflict of interest in the financial advice world.

Entitled "Fund manager payments breed skepticism", the article said research conducted with financial planners suggests that "64 per cent of respondents (financial planners) either agreed or strongly agreed that a conflict of interest was likely to exist if research houses were paid by fund managers for their ratings." The integrity of research houses is questionable as dissatisfying ratings may sour the relationship with fund managers. If a fund manager receives a bad rating from research house A it may choose to pay research house B to rate its products instead.

Currently some financial planners receive commissions from the products they recommend to clients. Because different products have different commission rates, what are the chances they're recommending a product that gives them the most commission?

In both instances the problem lies in the fact that research houses and financial planners are not operating on a strictly "user-pay" basis; the perception that their service can potentially be biased is hard to eliminate, with payments and incentives coming left, right and centre from fund managers and product manufacturers.

CHOICE has long been campaigning for this issue - you can find more information here.

How to comment

Here's your chance to join in the debate. Click in the comment box and let the CHOICE Community know what you think.

Reporting comments

If you see something offensive or irrelevant, hit the report button and let us know immediately. View the Terms of use for user comments.

Have your say

Your say - Choice voice

We'd love to hear what you think but you'll need to register top, right to join in the conversation.

Members – Sign in on the top right to contribute to comments
Your say - Choice voice

Sign up to our free

Receive FREE email updates of our latest tests, consumer news and CHOICE marketing promotions.