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  • 6 - Conflicts of Interest in Investment Advice: An Expanded View

  • from Part II - Gaps and Alternatives in Fiduciary Regimes
  • Edited by Arthur B. Laby, Jacob Hale Russell
  • Book:
    Fiduciary Obligations in Business
    Published online:
    20 August 2021
    Print publication:
    09 September 2021, pp 113-131

  • Summary

    Financial firms that offer investment advice to retail clients are beset by conflicts of interest: they may receive compensation tied to particular products, operate the financial products themselves, or be subject to other distortions. Regulators and lawmakers have looked to fiduciary and quasi-fiduciary duties to mitigate these conflicts. The paradigmatic example is the rigorous fiduciary standard imposed on registered investment advisers, but the Department of Labor’s now-defunct fiduciary rule, and the Securities and Exchange Commission’s recently adopted Regulation Best Interest similarly aim to mitigate problematic conflicts by imposing duties on those giving investment advice. These interventions largely focus on conflicts affecting which investment products investors are advised to hold, but other types of distortions, less discussed, may be just as important. This chapter offers an expanded account of conflicts of interest, how conflicts might interact, and how the fiduciary rule and Regulation Best Interest should be evaluated in light of this expanded menu of problematic incentives.