Stockbrokers and Conflicts of Interest
If you're looking to invest in the stock market, you may be considering the services of a stockbroker.
This kind of broker makes a living from the commissions on your stocks, and a brokerage firm supposedly has a research department that can monitor the performance of stocks and let you know when you should buy or sell.
What you may not know is that many of these firms have a conflict of interest.
They are supposed to be evaluating various stocks and giving you their objective advice, but these investment firms often are solicited in order to sell a particular company's stocks and bonds.
As you can imagine, your broker's firm has to demonstrate a willingness to sell a particular stock enthusiastically in order to gain business.
Imagine an honest analyst working for this kind of firm and trying to write a negative review about a particular company stock, when this company happens to be in business with the brokerage firm.
This kind of employee, who is simply trying to give an honest evaluation in order to give objective advice to his clients, can easily find himself fired or discriminated against in some way.
Perhaps an even worse outcome would be if this analyst was simply ignored, and no customer ever knew that there was any negative report about a particular stock.
(At least if the analysts were fired, there may be some more publicity which could help out customers.
) No one really likes to talk about these kinds of conflicts of interest, but they do do exist.
For example, a story in the Wall Street Journal reported that a Morgan Stanley executive was warning employees against making negative comments about their clients.
The memo which contained this information also stated that any negative opinions about the firm's clients had to be approved by Morgan Stanley's finance department!
This kind of broker makes a living from the commissions on your stocks, and a brokerage firm supposedly has a research department that can monitor the performance of stocks and let you know when you should buy or sell.
What you may not know is that many of these firms have a conflict of interest.
They are supposed to be evaluating various stocks and giving you their objective advice, but these investment firms often are solicited in order to sell a particular company's stocks and bonds.
As you can imagine, your broker's firm has to demonstrate a willingness to sell a particular stock enthusiastically in order to gain business.
Imagine an honest analyst working for this kind of firm and trying to write a negative review about a particular company stock, when this company happens to be in business with the brokerage firm.
This kind of employee, who is simply trying to give an honest evaluation in order to give objective advice to his clients, can easily find himself fired or discriminated against in some way.
Perhaps an even worse outcome would be if this analyst was simply ignored, and no customer ever knew that there was any negative report about a particular stock.
(At least if the analysts were fired, there may be some more publicity which could help out customers.
) No one really likes to talk about these kinds of conflicts of interest, but they do do exist.
For example, a story in the Wall Street Journal reported that a Morgan Stanley executive was warning employees against making negative comments about their clients.
The memo which contained this information also stated that any negative opinions about the firm's clients had to be approved by Morgan Stanley's finance department!
