Conflicts of interest exist in many parts of the Australian financial services industry. The problem is that not all of them are obvious, especially to people outside the industry.
It is also important to understand that a conflict of interest does not automatically mean someone is doing the wrong thing. Even an adviser who is honest, competent, and genuinely client-focused may still give advice that is coloured by a conflict of interest.
In this blog, I outline some of the more common conflicts I have seen over the past couple of decades and share practical ways investors can navigate them.
Financial incentives feed beliefs
American author Upton Sinclair famously wrote: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
On the surface, the conflict of interest is obvious. If I need to recommend property over shares (or the other way around) to generate business, whether I am an employee or self-employed, then my incentives are not neutral.
But it runs deeper than deliberate bias or deception.
If someone has recommended property over shares for years, that becomes their lived experience. And in many situations, it is likely they have applied the same philosophy to their own wealth. Over time, a circular feedback loop forms: their industry role creates an incentive; they act in line with it; they then observe outcomes professionally and personally; and those outcomes reinforce their conviction that their approach is “right”.
Therefore, a conflict of interest does not automatically mean someone is acting improperly. They may genuinely believe property is more attractive than shares. But that belief can be the product of a narrow set of personal and professional experiences.
Therefore, the practical question is not “are they dishonest?” but “how broad is their experience, and is it the experience you want informing the advice you are about to take?”
Property tends to be more ‘set and forget’
Property and shares are the two dominant asset classes, and for most people, they are all you need to build substantial wealth safely over the long term.
What is less obvious, especially to people outside the advice industry, is that these two asset classes create a structural challenge for advisers.
First, it helps to separate asset classes from ownership structures. Structures like superannuation, an investment company, or a family trust can add complexity and may justify ongoing advice regardless of whether the underlying assets are property or shares. But let’s put that factor aside for a moment. What I would like to focus on in this blog is the practical difference between property and shares.
If I meet a prospective client and believe the best strategy is to buy one or two investment-grade properties over the next few years, and that this will absorb most of their surplus cash flow and attention, then they may not need ongoing advice to implement it. Yes, you should review property periodically and look for ways to improve cash flow and long-term performance, but it is comparatively “set and forget” once the acquisition is complete.
By contrast, if I meet a client whose focus should be building a share portfolio through regular monthly investing, or who already has a substantial portfolio, ongoing advice is often more justified. Managing a portfolio and making regular contributions typically involves ongoing decisions: what to buy next, how to maintain diversification, whether the chosen funds or ETFs still make sense, and how to respond to changes in markets, goals, and tax considerations. That kind of decision-making requires experience, skill, and discipline over time.
This is why, even in an asset-class-agnostic advice practice, there is an inherent conflict of interest: the asset class you recommend can influence whether that person will need you on an ongoing basis.
Familiarity bias is certainly alive and well
Familiarity bias is a mental shortcut: people overvalue what they know, assuming it is safer or superior. I can assure you it is alive and well in the Australian financial services industry.
Almost every financial adviser I have interviewed has little to no working knowledge of using residential property to build wealth. Their experience reflects that. Ask, “How do you incorporate property into your strategies?” and you will usually get an incoherent answer, or, at best, something that boils down to “whether to invest in property is a client-driven decision”.
I am not arguing that everyone should invest in property. But if you are paying for advice that is meant to be in your best interest, it is critical your adviser has comparable knowledge and experience across the two dominant asset classes, property and shares, so they can make an informed call on the right mix for you.
If an adviser’s sole competence is managing share portfolios and superannuation, it should not surprise anyone when their recommendations reflect exactly that.
As the saying goes: “To a man with a hammer, everything looks like a nail.”
Sidebar: the reason this imbalance in experience exists in financial planning is largely historical, and it comes back to regulation and how the industry used to be structured.
More than a decade ago, financial planning largely ran on commissions. Advisers were typically paid a percentage of the amount their clients invested in managed funds and superannuation. Regulation was built around that product-based model, so it naturally focused on financial products and largely excluded direct residential property. Property also sat outside the framework because it has always been regulated at a state level, rather than by the federal government.
But that was then, and it is not a model that will serve the industry going forward.
Now that advice is meant to be fee-for-service, I think it is incumbent on Australian advisers to deliberately educate themselves on the evidence-based ways clients can build wealth through direct property investment. I am not suggesting everyone should become pro property. I am saying advisers should be competent across both major asset classes, so they can make genuine comparisons and give advice that reflects the client’s needs, not the adviser’s comfort zone.
How can you argue if it has worked?
If someone has become a multi-millionaire through investing in Bitcoin, how could anyone possibly convince them it is not one of the best investments?
That is confirmation bias in action. And when you add overconfidence bias, you have a recipe for conflicted advice.
Confirmation bias drives people to seek out, notice, and overweight information that validates the decision they have already made. Overconfidence bias often follows success: it breeds excessive faith in what has worked before, and it encourages people to attribute outcomes mainly to skill or the “quality” of the investment, rather than acknowledging the roles of timing, luck, and favourable market conditions.
Therefore, when you are seeking advice, look beyond credentials and certainty. Pay attention to the breadth of the individual’s experience and to the firm’s business model, because those forces inevitably shape the advice you receive. Then ask the more important question: is that advice likely to be balanced, and if not, is that the right fit for your circumstances?
Status signalling and identity
Some businesses market investment strategies by selling status and identity, not outcomes. They might push the idea of buying 10 properties in three years and becoming a “real estate mogul” or spruik private equity investments as a shot at a 10x return you can brag about.
That is not a conflict of interest in the traditional sense, but it is still a trap investors need to recognise. When decisions are made to reinforce self-image rather than to fund long-term lifestyle goals, the odds of a poor outcome rise fast.
A strong strategy does not need to be sexy. It just needs to work. In fact, the most evidence-based approaches are usually boring. They deliver progress steadily, with very little to boast about in the short term, and that is often exactly why they work.
Conflicts can push you in the wrong direction
Probably 90% of successfully managing conflicts of interest is simply recognising that the conflict exists. Many of the conflicts I have discussed above are not obvious to investors, which is exactly why I wanted to write about this topic.
Once you acknowledge there may be a conflict, you give yourself permission to question, investigate, and interrogate the advice you have been given, and to assess the extent to which it may have been coloured by incentives, experience, or bias.
Our view is that good advice should be easy to explain and easy to understand, because it is typically grounded in evidence, basic logic, common sense, or straightforward maths. That approach gives clients confidence that even if a potential conflict exists from time to time, the advice is still anchored in what is best for them.
