Why most financial advice is not neutral

A conflict of interest exists when the person advising you earns more if you do something that is not best for you. In finance, that situation is the rule rather than the exception — not because people are bad, but because of how they are paid.

Common conflicts

• Bank advisers are often paid through commissions or sales targets. The products that pay the bank most — actively managed funds with high fees, structured products, insurance wrappers — are not the ones that grow your money most.
• Fund managers earn a percentage of assets, whether they beat the market or not. According to S&P's SPIVA reports, roughly nine out of ten actively managed US large-cap funds trail the S&P 500 over 15 years.
• Brokers and trading apps earn on activity: the more you trade, the more they make. Your returns tend to move the other way.
• Financial media earn on attention. Fear and excitement get clicks; "nothing important happened, stick to your plan" does not.
• Product issuers follow demand: when a theme is hot, new funds appear — usually near the top.

A fee difference of 1–2% a year looks harmless. Over 30 years it can cost a third or more of the final wealth.

How to protect yourself

• Ask how the person is paid — commission, percentage of assets, fixed fee. Then ask what they would earn on the alternative.
• Look for skin in the game — does the manager invest their own money alongside yours, on the same terms?
• Know the total cost — fund fees, platform fees, trading costs, product costs. Write it down as a yearly percentage.
• Prefer simple, cheap building blocks — broad index ETFs cost a fraction of most actively managed products.
• Keep the decisions yourself. Nobody cares more about your money than you do.

Related: active, passive or systematic? · do less, profit more

By Dr. Harry Hamann · 5 min read