Conflicts of Interest in Financial Advice
Every way of paying for financial advice creates a conflict of interest. Commissions create an incentive to recommend a product. A percentage of assets creates an incentive about where assets sit and whether they stay invested. A flat fee creates an incentive toward efficiency rather than depth. None of these makes advice bad, and no model removes them all. What separates firms is whether the conflicts are named plainly, written down where you can read them, and managed in a way you can check.
On this page
Why no model is conflict-free
A conflict of interest exists whenever the person advising you has any reason, however small, to prefer one outcome over another for their own account. By that definition the only conflict-free advice is advice nobody is paid for.
This matters because the industry often discusses conflicts as though they were a defect in some firms and absent from others. They are not. They are a feature of being paid, and the useful questions are which conflicts a given arrangement creates, whether the firm says so without being asked, and what it does to keep them from affecting the recommendation.
A firm that claims to have none is either using a narrow definition or has not looked closely.
What each model actually incentivizes
Each arrangement pulls in a direction. Knowing which direction is most of what you need.
| How the firm is paid | What it creates an incentive toward |
|---|---|
| Commission on a product | Recommending a product at all, and the one that pays more where two would serve |
| Percentage of assets | Keeping assets under management, which can color advice about paying off a mortgage, buying an annuity, gifting, or rolling a plan balance |
| Flat or retainer fee | Efficiency, since additional work does not change the fee, which can show up as less depth in complex years |
| Hourly | Time spent, and separately a disincentive for the client to ask questions |
| Any of the above, affiliated entities | Keeping work inside the affiliated group rather than referring it out |
Read this as a map of pressures rather than as an accusation. Most advisors resist most of these most of the time. The reason to know them is that they tell you which recommendations deserve a second question.
Conflicts that come from structure, not pay
Compensation is the obvious source and not the only one.
A firm owned by, or distributing for, a product manufacturer has a shelf it is expected to use. A firm with affiliated entities has an incentive to keep work inside the group. Revenue sharing and platform payments from custodians or fund companies can influence what appears on a menu. Referral arrangements, in either direction, carry an economic interest that is supposed to be disclosed.
Scale produces its own version. A practice serving many households per professional has an incentive toward standardized recommendations, because customization does not scale. That is not misconduct, and it may be the right trade for a straightforward situation. It is still a pressure worth knowing about.
What disclosure is supposed to do
Registered investment advisers owe a fiduciary duty to advisory clients, and part of that duty is to eliminate conflicts or disclose them clearly enough that a client can give informed consent. Broker-dealers making recommendations to retail customers operate under Regulation Best Interest, which carries its own disclosure and conflict-management obligations at the point of recommendation.
Disclosure is not an excuse, and it is not a cure. It is a transfer of information that lets you decide what weight to give a recommendation. The test of whether it worked is simple: can you say, in your own words, how this firm makes money and where its interests and yours diverge? If not, you have been given documents rather than disclosure.
This is not legal advice. Regulatory standards and disclosure requirements change, and how they apply to a particular firm depends on its registrations. Verify any firm's status yourself through the public databases described below.
Reading the conflicts section of a Form ADV
Every registered investment adviser must give you Form ADV Part 2A free of charge, and it is public besides. It is written in plain English by requirement, and most people never open it.
Four items carry most of the signal. The fees and compensation item sets out how the firm is paid and what else you bear. The other financial industry activities and affiliations item names related entities, including insurance agencies and broker-dealers. The client referrals and other compensation item covers payments the firm makes or receives for introductions. And the brokerage practices item covers what the firm receives from custodians.
Read those four and you will know more about the economics of the relationship than most clients ever do. Pull it from the SEC's Investment Adviser Public Disclosure system at adviserinfo.sec.gov, and check individuals through FINRA BrokerCheck at brokercheck.finra.org. Do it for any firm you are considering, this one included.
Our own conflicts, named
An article about conflicts that did not name the publisher's own would be an advertisement. Ours are these.
We are fee-based, not fee-only. Investment advisory services are provided through Maisch Financial Partners, LLC, a New Jersey state registered investment adviser, compensated by client-paid advisory fees. Insurance services are provided through Maisch Financial Group, LLC, an affiliated agency, and our insurance representatives may receive commissions when a client purchases an insurance product. That creates an incentive to recommend insurance, and it is disclosed in our Form ADV.
Being paid a percentage of assets creates a second one. It gives us an interest in assets remaining under our management, which is relevant any time we discuss paying off a mortgage, making a large gift, buying an annuity, or rolling an employer plan balance to an account we manage. That last case is specific enough that we state it on the rollover article as well.
We manage these by naming them, by describing the compensation attached to anything we recommend, and by confirming that no client is obliged to buy any insurance product through us or anyone else. Our Form ADV is linked in the footer of every page. The fuller description of our compensation sits on how to choose a fee-only advisor in New Jersey, and the rollover conflict is set out in 401(k) Rollover Options When You Retire.
Planning in Moorestown
We work with households in Moorestown, where the tree-lined streets and walkable Main Street are home to many long-settled families thinking carefully about how to pass on what they have built. Those conversations surface the conflict question directly, because transfer decisions are exactly where an advisor's interests and a client's can diverge: whether to gift during life, whether to fund a trust, whether assets stay invested or move. Our retirement income planning, investment management, tax planning, estate and legacy planning, and health care and Medicare planning are delivered as one coordinated engagement, and where a recommendation would increase what we are paid we say so at the time rather than leaving it in a document. Moorestown is a short drive from our Mount Laurel office, and we also meet by phone or video. The communities we serve are listed on our cities served page.
Frequently asked questions
Can a financial advisor have no conflicts of interest?
No. A conflict exists whenever the person advising you has any reason to prefer one outcome for their own account, which means the only conflict-free advice is advice nobody is paid for. Commissions, percentage-of-assets fees, flat fees, and hourly billing each create a different pressure. What separates firms is whether the conflicts are named plainly, written where you can read them, and managed in a way you can check.
What conflicts does a fee-only advisor still have?
Removing product commissions removes one category and not the rest. A firm paid a percentage of assets has an interest in assets staying under its management, which is relevant to advice about paying off a mortgage, making a large gift, buying an annuity, or rolling an employer plan balance. A flat-fee firm has an incentive toward efficiency, since extra work does not change the fee. Structure matters too, including affiliations and referral arrangements.
Where do I find a firm's conflicts of interest?
In Form ADV Part 2A, which every registered investment adviser must provide free of charge and which is public through the SEC's Investment Adviser Public Disclosure system. Four items carry most of the signal: fees and compensation, other financial industry activities and affiliations, client referrals and other compensation, and brokerage practices. Individuals can be checked separately through FINRA BrokerCheck.
Does disclosure solve the problem?
It is not a cure and it is not an excuse. Disclosure transfers information so you can decide what weight to give a recommendation. A practical test of whether it worked: can you say in your own words how the firm makes money and where its interests and yours diverge? If not, you have been handed documents rather than given disclosure, and it is reasonable to ask again until the answer is plain.
What conflicts does Maisch Financial Group have?
Two we state plainly. We are fee-based rather than fee-only: insurance is offered through an affiliated agency and our insurance representatives may receive commissions, which creates an incentive to recommend insurance. And being paid a percentage of assets gives us an interest in assets remaining under our management, which is relevant to advice about mortgages, gifts, annuities, and rolling an employer plan balance to an account we manage. Both are disclosed in our Form ADV.
Key takeaways
- Every compensation model creates conflicts. A firm claiming none has not looked closely.
- Each model pulls in a specific direction, which tells you which recommendations deserve a second question.
- Structure creates conflicts too: affiliations, referral arrangements, and scale all apply pressure.
- Form ADV Part 2A is free and public, and four of its items carry most of the signal.
- The test of disclosure is whether you can describe the firm's economics in your own words.
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If you are evaluating firms and want our Form ADV before anything else, we are happy to send it and walk through what is in it.