Aligning Interests in Investment Industry

Just a brief post in response to the presentation of Claire Hill (from U of Minnesota) at Queen’s Law today.

Ms. Hill diagnosed as a major contributor to the financial crisis the misalignment of interests – i.e. if it was in the investment advisors’ interests to do the right thing, they would do the right thing. Her presentation surrounded the development or change of society’s norms as a possible solution (from a societal perspective) to the problems in the financial industry and as a method of prevention of future crises. Achieving this would come from things like the writing of (and subscription to) professional codes of conduct, ethics training in business schools, etc.

Upon further thought, however, I am left with an uneasy feeling regarding points about the aligning of interests, while at the same time advocating more ethicality on the part of financial advisors.

If the reason people misbehave is a misalignment of interests, and we can simply fix the problem by realigning them, then who is to blame when things go wrong – individuals who make selfish choices or the state/regulators who do not create proper systems to manage and align interests?

To put it another way, we want people to stop acting in their own interests, while we are trying to make their interests the same as (or at least overlapping with) the interests of others. Ultimately, we’re trying to make it so that people can have their cake and eat it too – they can be selfish because in doing so, we’ve made it that they are necessarily taking others’ interests into account as well.

But where does ethicality factor into this?  Are we sure the main problem is misalignment, and do we want to train people to focus on aligning interests?

Wouldn’t a better approach be to remind people that interests may overlap but regardless of whether or not they do, an actor should take others’ interests into account or risk ethical or legal sanctions? to separate interests (at least in theory) and not roll them all into one line of self interest along which individuals may proceed?

I realize that it is always in your best interests to want to do what you should do, and aligning interests is one way of achieving that. But at the same time, sometimes an attitude adjustment is what is needed, and not a shift in interests alignment.

For more information about Claire Hill and her research, visit:

~ Joy

About the Author

Joy Wakefield
Joy is a 2012 JD Candidate at Queen's with an iBBA from Schulich. She is active in exploring different fields of law inside and outside of school and is soon to be heard on Pro Bono Radio (CFRC 101.9 FM). She works as the Office Manager of the Queen's Business Law Clinic and as a TA for the Queen's School of Business.