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In: Finance

I’ve been reading about the debate about advisors being paid commissions and the conflict of interest...

I’ve been reading about the debate about advisors being paid commissions

and the conflict of interest that arises from that. Are there any conflicts of interest for fee-only planners?

Please answer this question in detail as if you were advising a client.

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Expert Solution

The conflict of interest arises when a financial advisor recommends a financial product to a client and he is being paid commission for the sale of that product by that company. Let’s say JP Morgan is an asset management company it come up with a derivative product named XYZ and the financial advisor is recommending that XYZ product to a client and after the sale is completed the financial advisor is paid certain percentage of commission by the JP Morgan of the total purchase value by client, here there is a clear conflict of interest. The financial advisor can recommend any product to the client even that product is not suitable for client and he is earning high commission on that. But in the case of fee-only planners, they are not paid commission by theses fund house and he charges a fee for his service to his client so here the conflict of interest should not arise because he is directly charging the client and it really does not matter what fund he is recommending as long as it is suitable and beneficial for the client. So, in the case of fee only planners the probability that the conflict of interest arise is very low or minimal.

jeff jeffy answered 1 year ago
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