Which of the following is a consequence of failing to manage conflicts of interest?

Failing to manage conflicts of interest can lead to legal penalties and a significant loss of credibility for an investment advisory firm. When conflicts of interest are not properly addressed, it can result in actions that are not in the best interests of clients. This can lead to regulatory scrutiny, investigations, and potential legal action by regulatory bodies. Firms may face fines or other penalties, which can be costly and damaging.

Additionally, the loss of credibility stems from clients’ perceptions; when clients discover that their advisor did not disclose conflicts or acted in self-interest rather than in their best interest, it damages trust. Rebuilding that trust can take a considerable amount of time and effort, negatively affecting client relationships and the overall reputation of the firm.

In contrast, managing conflicts of interest appropriately can bolster trust, enhance client loyalty, and ultimately promote a positive reputation for the firm, making the consequences of failing to manage such conflicts particularly severe.