Conflict of interest
A conflict of interest is a situation when a firm or agent benefits from both sides of an issue, or in investing is hired by an individual to represent his best interests but works for or has a business relationship with the other side of the issue.
Common conflicts encountered in investing include--
- The financial planner who advises you to invest in products or services that his firm is paid to represent. Load funds and annuities are common examples. One can wonder if the advice is in the best interest of the client.
- The analyst who recommends a buy of stock in a company that generates large fees with the same firm for investment banking services such as a new stock issue or the arrangement of other financing. Panning the stock might result in loss of the investment banking business.
Efforts are made to limit such conflicts and many are mentioned in news reports, but enforcement seems lax or inconsistent. Investors must watch out for their own best interests.