We all have them, conflicts of interest. The question isn’t do we have them, but how do you manage them. Or, how do you limit the number of conflicts that you have?
I’ve thought long and hard on this subject. One of the business models we have does a pretty good job of managing conflicts. It doesn’t completely get rid of the conflicts but I’ve been able to figure out what the two conflicts I have are.
What a conflict of interest might look like.
A conflict of interest comes in many forms. If you’re a mergers and acquisition company, anything that doesn’t lead to a sale takes money out of your pocket. That’s a conflict of interest.
If you’re a money manager and your client has an idea for an investment that you can’t handle, you have a conflict of interest. If you recommend they move to the other investment, you lose money. If you don’t make that recommendation are you working in your client’s best interest?
If you’re an attorney the solution you’re likely to see will be through the legal system. Even though you might not know about other ways of solving a problem, you have a conflict in interest through a personal bias. Your personal bias is that problems should handled in the legal system.
Why you should care about this.
If you’re a client you should care about this a lot. If you don’t know what the natural conflict of interest of advisors you’re working with is then you could get advice that’s not in your best interest. First, figure out what the conflict of interest your advisor has. Then, ask them how they manage their natural conflict.
If you find that the person you’re working with can’t come up with a logical reason for their recommendation you might want to move on. Often this is a good time to trust your gut. If it doesn’t feel right, it probably isn’t right.
Why poor conflict management contributes to poor trust levels.
My belief is that you are always either building trust or losing trust. When you have a conflict of interest in what you’re suggesting there is a very good opportunity to lose trust with a customer. This is why many people don’t trust salespeople.
You know the salesperson has a conflict of interest. If they don’t make a sale, they don’t get paid. This might lead to a recommendation that works in the salesperson’s best interest but not yours. If you think about it you also probably know that everyone you deal with has a conflict and their advice might not be in your best interest.
Even if you don’t think about it you’ll find that your trust level goes up and down depending on how much self-interest the person you’re working with shows. The more self-interest, the less trust you’re going to have in them.
What I’ve done to manage our conflicts.
Let me tell you a true story. I was working with a client on strategic issues in their company. It got to the point where we needed to talk about their investments. I started talking about what we would do and strategies I suggested for his investments. He looked at me and asked, “Who are you working for?”
At first I didn’t understand what he was talking about. Then I got it, up to that point I had been making suggestions that had no economic value for me. When I started talking about his investments there was an economic value for me and asking who I was working for became a very logical thing to do.
I asked this client if he would rather have me raise his fee and take all investments and insurance purchased through me off the table. He said yes and this is a method of doing business I’ve adopted for those who are interested.
When I work on a no product basis with a customer there are only two conflicts I have. The first is my own biases about how the world works. This is why I think it’s important for you to understand the belief system your advisors have and make sure they fit with your worldview. My second conflict is whether you sell your business or not. If I get into this conversation with you I’ll tell you that there is a conflict and what that conflict is.
My question to you is do you know what your advisors conflicts of interests are? If not, you should think about this for a while. Better yet, if you know ask your advisor what they think their conflicts of interests are. You just might be surprised by their answers.
One of the ways for you to examine if we can work together is to think about our Objective Review process. This program allows you to work with us for two days to see if we’re compatible and if our belief systems about how to create value are similar. If you’re interested in learning more about our Objective Review, click on the button below.