Bloomberg reports JPMorgan asset management executives have been questioned by the SEC about their undisclosed policy to steer clients to in-house products.  While there is a clear potential for a conflict of interest as JPMorgan would benefit financially from the use of in-house products, it is unclear the extent to which this biased financial advice resulted in additional harm to the investors over what would have occurred had a third party’s products been used.

In Transparency Games, I discuss two other asset manager conflicts of interest where investors are clearly harmed. Each is driven by the desire of the asset manager to retain their job.

First, there are the investment charter constrained asset managers who represent expertise in valuing the opaque financial products they are restricted to buying and selling.  By definition, these products cannot be valued as they do not disclose all the useful, relevant information in an appropriate, timely manner.  In making a representation about their expertise, these asset managers do not disclose anyone buying or selling these opaque financial products is simply blindly gambling.

Of course, if the asset managers said they were blindly betting with the investors’ money, it would put their jobs in jeopardy.  Who would give an asset manager to blindly bet?

Second, there are the asset managers who leave their funds open for new investments even though they personally don’t like the risk/reward tradeoff from investing in the financial products they are restricted to buying and selling.  By not telling potential investors their view, they deprive the investors of information the investors need before making an investment decision.