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