Why is conflicted remuneration a problem?

This is a problem because it leads to poor customer outcomes, potential illegal or unethical behaviour and an erosion of trust and confidence in the financial sector. There have been a number of serious financial sector crises over many years where conflicted remuneration has been a common factor. These have included the collapse of Storm Financial Services,  recent financial planning scandals that have led to over 200 planners losing their jobs and the 2016 exposure of fraudulent accounts for over 1.5 million Wells Fargo Bank customers in the USA. During the Global Financial Crisis of 2008-2010 a series of corporate collapses uncovered widespread use of conflicted remuneration where literally millions of businesses and consumers had been signed up for inappropriate products and services. The Financial Conduct Authority in the UK says, “Inappropriate remuneration policies were widely identified as a contributory factor to the financial crisis.”

Trust is an essential element of a successful financial system and that trust requires ethical standards that include a financial institution having a duty  to put the customers’ best interests ahead of its own. Similar professional ethical standards apply to doctors, lawyers and teachers.

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