There are two opposing camps when it comes to conflicts of interest.
One camp believes temptation doesn’t make us bad; it allows us to be good. Then there is the Oscar Wilde camp: “I can resist anything but temptation.”
When it comes to your personal finances, understanding your professional advisor’s conflict is an important consideration.
In the registered investment advisor or brokerage space, fiduciaries have to make recommendations that are in your best interest; non-fiduciaries must make recommendations that are suitable. Neither are free from conflicts, but fiduciaries are required to put your interests ahead of their own. A suitable investment simply means it is appropriate for your circumstances: It doesn’t speak to how it is structured or the costs involved.
Neither type of advisor can guarantee results. The best outcomes for you are when you are actively engaged with your advisor and question things you either don’t understand or that make you uncomfortable.
If you are buying or selling a home, it is appropriate to engage a realtor. They will often have information or access that might be harder to obtain on your own. If you are looking for a home and have a buyer’s rep agreement, the realtor is working on your behalf. When you are selling your home, you have a seller’s agreement with the realtor. Recent changes might mean buyers can pay some of the realtor’s commissions, but that is still unusual.
The biggest conflict occurs when a realtor represents both the buyer and the seller of the home (dual agency). This is awkward at many levels: When you are selling, the realtor generally has an idea of what an acceptable price would be to you, as they simultaneously provide guidance to their buyer as to what a reasonable offer would be. They are giving guidance on how to handle an inspection to both parties. Their commission is significantly higher, so they have a vested interest in closing the deal. Even King Solomon would have difficulty splitting this baby.
Life insurance agents have a variety of products they can show you, many with varying commission structures. Cost should not be the only consideration in obtaining insurance. Instead, ask for alternatives to the recommendation and have them explain why what they are showing is best for you.
