The monstrous offspring of two conflict-of-interest titans?

Perhaps no types of conflicts of interest cast bigger shadows on the US ethical landscape than do those of doctors prescribing medicines based on the doctors’ economic interests and financial advisors giving investment advice motivated by their own, and not their clients’, economic interests.  And now, these two COI giants seem to have joined together to form a new and particularly grotesque COI:  doctors advising patients to sign up for medical credit cards where doing so benefits the doctor but causes economic harm to the patient.

As described in a NY Times editorial today: “Patients around the nation are being victimized by medical credit cards that can lead to financial calamity. These cards, issued by specialty finance companies as well as commercial banks, carry exorbitant interest rates after an initial period of zero interest expires — with heavy penalties for late payments. They are often pushed on patients with modest incomes by health care providers who want to make sure that they get paid, even if some of their patients end up with huge credit card bills they can’t afford. [It is] hard to imagine a situation in which a consumer is more susceptible to financial coercion by a provider with a conflict of interest.”  As also described in the Times piece: “Numerous civil lawsuits have been brought by state authorities and lawyers for consumers against care providers and financial companies for misleading practices,”  but the problem cries out for a national solution.

Meanwhile, efforts to find comprehensive solutions to the perils posed by the two COI titans proceed apace. With respect to medical doctors, the most important recent development on this front is the advent of the Sunshine Act  earlier this year.  Indeed, this new law may serve as an unprecedented test of Louis Brandeis’ famous saying  that “[s]unlight is said to be the best of disinfectants,” and so should be of keen interest not only to  C&E practitioners but also scholars  in the business ethics field looking for data to analyze.

And a potentially significant step forward regarding conflicted financial advice is this report issued last week by the Financial Industry Regulatory Authority (“FINRA”). As described by FINRA’s Chairman and CEO Richard G. Ketchum:    “While many firms have made progress in improving the way they manage conflicts, our review reveals that firms should do more,” and the report provides “examples of how some large broker-dealer firms address conflicts” including “identifying and managing conflicts on an ongoing basis through an enterprise-level approach that is scaled to the size and complexity of a firm’s business and that starts with a ‘tone from the top’ that carries through to the organization’s structures, policies, processes, training and culture; establishing new product review processes that include perspectives independent from the business proposing products, that identify potential conflicts raised by new products, that restrict distribution of products that may pose conflicts that cannot be effectively mitigated and that periodically re-assesses products through post-launch reviews; making independent decisions in the wealth management business about the products they offer without pressure to favor proprietary products or products for which the firm has revenue-sharing agreements;  minimizing conflicts in compensation structures between customer and broker or firm interests where possible and including heightened supervision when conflicts remain; for example, around thresholds in a firm’s compensation structure;   mitigating conflicts of interest through disclosures and other information that enables customers to understand the factors that may affect a product’s financial outcome—such as the use of scenarios and graphics for a particular product; and  including ‘best-interest-of-the-customer’  standards in codes of conduct that apply to brokers’ personalized recommendations to retail customers in order to maintain and increase investor trust.”

The FINRA report is indeed a virtual encyclopedia of COIs involving brokers and sound mitigation measures addressed to such COIs.    It is a must read not only for C&E professionals in the financial services industry but for COI aficionados of all kinds, and in future posts I hope to “mine” the report for mitigation ideas that could be useful in other contexts (perhaps even the credit card business).