Speaking to InvestorDaily, US-based Bachrach & Associates chief executive Bill Bachrach said the reality is that many financial advisers work in an environment where there is both product manufacturing and product distribution.
“It really boils down to a personal integrity issue and if you’re putting the client first,” he said.
There are bank-employed advisers as well as advisers operating in dealer groups who are doing a “phenomenal job for the clients”, said Mr Bachrach.
“And even though the manufacturing of the product is right next door, the advice that they’re giving is still in the best interests of the client,” he said.
On the other hand, there are advisers in all of the distribution channels (including self-licensed advisers) “who probably belong in jail”, said Mr Bachrach.
“I don’t think the distribution channel is what determines the quality of advice – I think it’s a very individual choice,” he said.
The manner in which an adviser is remunerated shouldn't affect their integrity, said Mr Bachrach.
But for someone who already lacked integrity, the remuneration system could push them over the edge by creating a great “temptation”, he said.
He used an Alcoholics Anonymous analogy as an example.
“I have a friend who’s in the program, and they have a saying that if you hang out in a barber shop, sooner or later you’ll get a haircut,” said Mr Bachrach.
Just as alcoholics “probably shouldn't hang out in bars”, advisers who lack integrity are vulnerable to conflicted forms of remuneration, he said.
“I imagine for some people it might be an issue, but for most advisers I don’t think it’s an problem,” said Mr Bachrach.
“What we should be focusing on is: 'How do we really take care of the clients?' 'How do we give the best advice?'” he said.
“I work with advisers and organisations from all of the different distribution channels and those are conversations they’re having,” said Mr Bachrach.
