Investors are eager to find sources of objective advice. Unfortunately, investment advisors often may have inherent conflicts of interest with the investor. Biased advice is something that investors need to learn how to identify if they want to avoid it.
The Prudent Practices for Investment Advisors defines a global fiduciary standard of excellence for professionals who provide investment advice, including financial advisors, broker-consultants, investment consultants, wealth managers, financial consultants, trust officers, financial planners, and fiduciary advisers. This fiduciary handbook addresses conflicts of interest in one of their 21 Prudent Practices. As investment advisors have a duty of loyalty to their clients, Prudent Practice 1.4 requires that the investment adviser identify all conflicts of interest and then address these conflicts in a manner consistent with their duty of loyalty to the client. Practice Criteria 1.4.2 further stipulates that conflicts of interest are to be avoided when possible and always when required by law, regulation, and/or governing documents.
If investment advisors are to avoid conflicts of interest with their clients, we need to identify the various types of conflicts of interest between the investor and the investment advisor. What does a conflict of interest look like and sound like? How is an investor supposed to be able to identify a conflict of interest with their investment advisor? How is an investment advisor to avoid conflicts of interest with the investor when they themselves often cannot identify a conflict of interest with the investor?