11 October 2017

Financial Planners and Conflict of Interest

Conflict of interest is probably the most common factors that lead some San Francisco Financial advisors to engage in malpractices. The thing with this industry is that conflict of interest comes from all directions. It may be pressure from the company's management to compel employees to sell securities or relationships with clients and other people in the same industry.
Relationships and Conflict of Interest
Relationships that lead to conflict of interest are usually from within the industry. An advisor may know another expert such as an investment banker within the same industry, selling some securities that may interest the investor. Because of the long standing relationship between the two, or favors exchanged in the past, he may be compelled to push the offer to his client.
Such relationships also exist between firms and mutual fund companies. Very often these firms have a revenue sharing arrangement with certain mutual fund companies. In effect, they get their payments from such companies. Some of the firms that charge lower fees use these arrangements in order to make up for the lost revenue.
Commissions and Fees
Commissions are some of the most common incentives that lead to conflict of interest for some financial advisors. They will offer advice based on what they are getting from a particular fund or security. The fee structure is also a factor when it comes to this kind of conflict of interest. Some San Francisco financial advisors may charge you a flat fee. This is seen as safer by some, but may get you in a tricky spot if the investments do not give the expected returns.
This is usually done by a non fiduciary advisor. They are allowed to give advice that is only suitable but not necessarily 100% in the best interest of their client. A fiduciary must protect their client and tell them whether there is any possibility of conflict of interest, before he signs up for their service. When rating financial advisors, the fiduciary factor is important and they often charge more for their services.
Reward System
There are internal reward systems within some companies that may encourage some employees to sell bad financial products to their clients. Professional companies have reviewed their reward system to ensure it does not lead to abuse. You need to do thorough research to ensure that the rating financial advisors, you pick one that will help you realize your goals.