I'm super sensitive to conflicts of interest. I've written extensively about conflicts and how to manage them in this blog. Invariably, I believe the best way to deal with conflicts is to try to avoid them rather than resist them.
Which is why Fairhaven Wealth isn't affiliated with product issuers or brokerage service providers; doesn't receive commission; doesn't charge asset-based fees; and keeps product issuers at arms' length by providing product-agnostic advice and not implementing advice on behalf of clients.
But it's still impossible to avoid all conflicts of interest!
For example, I've charged a fixed fee for every client I've had so far. I love this pricing model, because I don't need to track my time to the minute. But over time, it could make me want to spend less time than might be suitable, because I get the same amount of money regardless of whether I spend 1 hour or 10 hours. (Similar conflicts are at play if I were to charge on the basis of time spent: there would be an incentive to spend more time than I might otherwise spend. In my heart of hearts, I don't think I'd do it. But there could be that temptation one day.)
I've been running my business for a couple of months now. And two other interesting types of conflicts have raised their head:
- I am extremely tempted to promote my business by saying "If I can't save you more in unnecessary fees or premiums than the cost of my advice in the first year, I'll reduce my fees". Or something to that effect. Because in almost every case, I've been able to point out specific cost savings for my clients that have exceeded the cost of my fees.
The difficulty with this is that it creates a subtle incentive for me to look for the cheapest products and options. And that's not my role. My role is to recommend products that fits with the client's circumstances, needs, and objectives, which in most cases will save them money, but in others might result in higher fees or premiums. Sometimes spending more can be worth it. So as tempting as it is, it's not appropriate for me to market this way and creative subtle incentives for me to provide advice that might not be the best advice for the client.
- It's extremely tempting to complicate the advice I provide, to make my advice seem more valuable. The truth is, there are some clients where my practical advice is as simple as "switch your KiwiSaver from X provider to Y provider, and select a balanced portfolio; when your term deposit matures, invest the proceeds into managed investment Z, with the balanced option".
Sometimes it all seems too straightforward. I need to stress that although the recommendations are simple, the process of coming to these recommendations isn't necessarily simple, and supporting those recommendations is a lot of research behind the scenes to compare my preferred products with other products available on the market.
In each case, I'm tying my arms to the mast. I'm not going to market myself in a way that suggests I'll save clients more in unnecessary fees or premiums than the fees they charge me, because that's not always going to be the case.
And in most cases, the best advice is simple, and complicating it is often counter-productive. And so, it's important when I meet with clients that I make it clear that my aim is to provide straightforward advice. Like an iPhone that "just works", the simplicity of the advice is not a flaw at all - it's a feature.