Financial Conflicts of Interest

We define a financial conflict of interest as a situation in which a person, institution or organization has more than one financial  interest in a particular investment vehicle or asset. The problem occurs when parties whose interests are singular, and thus not compromised, depend upon a conflicted individual or institution for primary advice concerning the purchase, sale or retention of the conflicted financial asset. The conflict "corrupts the motivation of the individual or organization" providing advice. 
According to the White House's Council of Economic Advisers, "conflicted retirement investment advice costs investors $17 billion each year,"
The US Department of Labor recently held a hearing on conflicts of interest in the provision of retirement investment advice. The goal of the hearing was to gather testimony on the Employee Benefits Security Administration's (EBSA) proposal to reduce conflicts of interest in the retirement advice marketplace.
As I noted in my testimony, and paraphrasing Martin Luther King, “All investors are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one investor directly, affects all investors indirectly.”
We agree with others who “see the need for better balance between short- and long-term investing.“  Unfortunately, little in the Department’s Conflict of Interest proposal serves to enhance that balance.
This is particularly important. As the market value of environmental, social and governance factors continues to grow, companies and investment managers will engage in fraudulent practices related to these factors. These practices will range from simple falsification of environmental, social and governance records to more sophisticated, but no less fraudulent methods related to environmental, social and governance ratings. We have provided evidence that unethical practices have flourished in capital market institutions, propelling ethical standards of behavior downward. Thus, unethical behavior has become standard in the financial services marketplace.
While the Department's proposal is flawed, it is the very least that can be done to begin to address the problem.

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