Investment Advising and Conflict of Interest

The contract, which the authorized institutions make with their customers, on which capital market instruments their customers would invest, which is related to underwriting about the subject of giving advices about the time when to buy and sell the capital market instruments based on their experiences, and technical and scientific data at the customers' cost, is defined as the investment advising contract. The subject of the contract is to underwrite; on which capital market instruments an investment would be made, to distribute the risk, to give customers information such as the times when to buy and sell the capital market instruments according to the market status. There are two factors of the investment advising. The first one is to give customers advices and sufficient directive information on the field of capital market. The other one is, of the authorized institution which provides investment consulting, to gain a benefit from customers in exchange for this service. For investment advising, a written contract must be made between the authorized institutions and their customers. These are out of the scope of investment advising to give investment advices during the performance of any activity, profession or job, with regard to this activity, profession or job, toward several unusual events; To give customers investment advices, written or oral comments while performing brokering activities of buying and selling by brokering institutions. In a similar way, comments and advices which take place on the media and on the electronic medium are also excluded from the scope of investment advising. In investment advising, an investment adviser and an investor agree on comments and advices about investments related to securities. The investment adviser undertakes a work performance in exchange for a payment, for the benefit of the investor and appropriate for the will of the investor, but independent from the investor. With this respect, investment advising complies with the contract of power of attorney. 2 In addition to the performing the performance work, which we can consider as being under the obligation of diligence and loyalty; the obligation of providing customers with proper advices, the obligation of making his advices to be based on sufficient and reasonable basis, the obligation of giving advices without any bias and protecting client's benefits, the obligation of advising client and the obligation of keeping secret are the main obligations of the adviser. Besides, the customer is under the obligation of providing all the information and documents required for being given an investment advising service proper for himself as well as paying fees. It is possible to define conflict of insterest as the interest of one's his own and the interest of somebody else with whom he has legal relation or the interests of each one of those two or more people with whom he has legal relation run up against each other. Conflict of interest can affect the objective informing. Besides, the existence of conflict of interest will cause the investors to lose their trust on the authorized institutions and the market. It is possible to list the cases of the main conflict of interest which occur in practice with regard to advising of investors as follows: the conflict of interest occuring due to the portfolio which the adviser or the authorized institution has (scalping), the conflict of interest occuring due to the commission income (churning), the conflict of interest occuring due to the other services which the authorized institution has provided, the conflict of interest occuring due to that the institution providing the advising service is also authorized for public offering of the stocks, the conflict of interest associated with market making, the conflict of interest occuring due to the relation between the authorized institution/ adviser and the company in question, the conflict of interest associated with the charging policy, the conflict of interest occuring due to the practice related to the reporting systems, the conflict of interest associated with the discrimination of some clients, the conflict of interest associated with the insufficiency of the knowledge and experience of the investors, the conflict of interest occuring due to that the truthfullness and effectiveness of the advices have not been monitored by broker institutions.