Conflicts of Interest and How to Maintain Your Fiduciary Integrity
Unless you work for free, every financial advisor will have conflicts of interest because compensation is inherently a conflict of interest. Since it is impossible to avoid all conflicts of interest, it is important to know what is required of CFP® professionals when they arise.
The first step is to identify any conflicts you have that could lend to putting your interests or the interests of your firm ahead of the client's. Once identified, you are required to disclose the conflict with enough detail so that a reasonable client can understand the conflict well enough to either either consent or decline to move forward. Once you hve the client's informed consent, it then becomes your ongoing task to manage the conflict in such a way that is in the client's best interest.
The process is straightforward and should never be a problem for a CFP® professional to adhere to. That said, sometimes when I present the CFP® Ethics CE, someone asks just how specific they need to be when disclosing compensation. My response is that while you can't just say, "I get paid on an AUM basis", or "I get a commission on this.", you also don't need to get into a detailed breakdown. Something like, "This mutual fund has a front-end load of 5%. They keep .5% and send the remaining 4.5% to my firm who pays be about 3.5%." That's adequate detail to which reasonable person could provide informed consent.
I then go on to share that in the 22 years that I have been a practicing CFP® professional, I have never had a client say, "Oh, no. If you are getting paid for this transaction, then I don't want to do it." Not once. In fact, I get the opposite reaction frequently where they express that they are glad I am getting paid for the advice and implementation work I am doing. Always remember we do good work and it is worth getting paid for. So don't worry about disclosing your conflicts of interest. Just handle it the correct way and you will have a long and prosperous career.
