Unfortunately, the financial industry is rife with conflicts of interest. Try though we might, we cannot eliminate them all completely. We plan in the near future on addressing some of the various forms this take in the financial advisory business and other places, however in the meantime, the following brief article from the Jan 12, 2009 issue of Forbes Magazine is quite interesting:
When the Treasury needed advice on dishing out $700 billion, it picked a consultant free of the usual conflicts of interest. You should do the same with your money.
In brief, the article discusses compensation amongst "pension advisors" - folks who advise institutional investors in their choices of money managers and asset allocations:
A more informative label would be "money manager managers." They advise pensions on allocation (stocks versus bonds versus commodities) and protect them from overcharging and chicanery.
Sadly, many of those advisors are compensated by both their clients and the money managers that they advise their clients to hire. That's exactly the sort of conflict we should hope to avoid, inasmuch as we want our advisors to select the very best money managers, not the ones who pay our advisors for selecting them. And this kind of conflict of interest shouldn't be that difficult to avoid. The first line of defense is to know exactly how your advisor is compensated.