When we talk about conflicts of interest in the financial planning world, the focus always defaults immediately to the advisor/consumer relationship. Are there in-house funds? Commissions? Is the advisor always recommending his/her asset management services? Is there an incentive not to recommend to pay down the mortgage? And so forth…
But our industry has a lot of other conflicts which are not usually discussed, involving all the various members of the financial planning support ecology. Take writers, for example. There are people writing columns in the trade magazines who also sell their services to the readers–I should know, since I'm one of them. Others include coaches (Bill Bachrach, Ray Sclafani and John Bowen), software service providers (Andy Gluck), consultants (Mitch Anthony, Peter Katt and David Lawrence), plus occasional contributions from various broker-dealer employees and mutual fund managers. When these people write about the benefits of what they do, you should know to be on your guard, but the conflict can be more subtle. Recently, one of these columnists panned a product that competes with his own services, and at the same time denigrated the advice of a rival columnist. This, it seems to me, is a classic example of acting on a conflict rather than disclosing, avoiding or managing it.
Routinely, we see mutual fund managers and service providers speaking at conferences, where the conflicts are sometimes handled better than others. Whenever I speak at the NorCal meeting, I have to sign in blood that I won't sell my services from the podium. But at one of the other major conferences, I was told (wink, wink, nudge nudge) that we don't pay for speakers, but this is a great opportunity for you to sell yourself to our audience. Meanwhile, I am still waiting for that presentation where a fund manager talks about a stock he purchased that went down.
I know of at least one person who sells software, but who self-promotes as a consultant. Like an annuity salesperson, the recommendation offered by this "consultant" always seems to be the "consultant's" own product.
The broker-dealers have conflicts of interest with their reps; they naturally want to keep these people in the fold even if it might make better business sense for them to give up commissions and be paid via fees. So the BD industry has created a whole mythology about "unregulated brokers" (fee-only advisors) who "don't implement." Does anybody think this represents a disinterested analysis of the alternatives? Is there a BD who offers impartial advice to its reps on whether it makes sense to have those sales licenses or not?
Of course, we have independent custodians that actively compete for clients with the advisors they service in their institutional division, and a more subtle kind of conflict where the company can't ever seem to be open and transparent about its plans with the advisory community, or fully support the efforts to create a fiduciary standard. Nondisclosure is also a form of conflict.
Meanwhile, at least one major software company has consistently refused to integrate with the other software vendors, and avoids any call for open standards and protocols. The goal seems to be, once you start using this vendor's software, you're trapped because your data is locked away in a system that is very difficult to export out of. That behavior doesn't seem to me to be tightly-compatible with the fiduciary culture.
There are several points to be made here. One is that, yes, advisors have to deal with very visible conflicts of interest, but so do we all in our own way. Whenever there's a harsh critique of conflicts, perhaps we should open up the discussion and evaluate the conflicts of all parties, and how well the outside vendors are managing theirs.
In the advisory world, how well you manage those conflicts provides a kind of character test. Some advisors seem to fall prey to every temptation, and you feel sympathy for their clients and some unhappiness that their reputation will reflect on yours. But the same may be true in the support ecology that surrounds the advisory world. If you're working with, or considering working with, one of those coaches, writers, BDs, custodians, you might start by asking yourself: how do they seem to be managing their own conflicts? Do they share our values, or don't they?
Just as everybody seems ready to call advisors on any lapse of fiduciary duty, so too should we be calling out those outside organizations whenever they fall short of a fiduciary attitude, whenever you see them hawking their wares when they should be giving an informative speech, whenever they're using their magazine column to criticize a competing vendor, whenever they're unsupportive of our regulatory efforts in Washington or our open platform standards in trade software.
We will never stamp out conflicts of interest, in the advisory world or anywhere else. But I think sometimes you get the impression, in our debates, that it is only advisors who have to deal with them, only advisors who fall short. Let's turn that very bright spotlight on the rest of us in the planning ecology, and like consumers, give our business and loyalty to those few really seem to belong in the fiduciary club, and live by the standards that you do.