RDR and conflicted advisers

Californication

Thought this was quite interesting:

http://www.psyfitec.com/2009/09/disclosure-wont-stop-conflicted-advisor.html

It essentially makes the point that requiring advisers to disclose conflicts (the current system with IFAs in the UK) can actually lead to even more biased advice relative to a regime where the potentially conflicted behaviour is removed by regulation (more like what the RDR is trying to achieve).

Nowhere are conflicts of interest quite so common as in the financial industry. Accountancy firms want to provide consulting services, credit rating agency employees want to work for security analysis firms, independent security analysts need to ensure their recommendations don’t lose their employers important mandates, financial advisors want to get commissions for recommending products ... the list is almost endless.

The popular answer to these problems is almost always the same – disclosure of the conflict of interest so that the purchaser is fully aware of the potential problem. Unfortunately the reason that disclosure is so popular is that it doesn’t work. Even worse, it may actually make the problem worse.

Well worth reading the whole blog entry (and the research paper it links to if you're keen).

Please don't just start shouting if you haven't actually read it Cognitive biases are subtle and people don't realise that they have them.

--C