How can personal trading by investment professionals create conflicts of interest?

Personal trading by investment professionals can create conflicts of interest because it has the potential to directly influence or conflict with the interests of their clients. When an investment professional engages in personal trading, they may prioritize their own financial gains over those of their clients. For example, if a trader buys a stock for their personal account before a client’s order is executed, they could potentially drive up the market price against the client’s interest. This behavior raises concerns about the integrity of the investment professional and the fairness of the market, as it implies that the professional may not be acting in the best interest of their clients.

Moreover, personal trading can lead to insider trading and other unethical practices if the professional uses privileged information for personal gain. The very nature of personal trading clashes with the fiduciary duty that investment professionals owe to their clients, which is to act with loyalty and care. This is why regulatory frameworks exist to mitigate such conflicts, but the essence lies in the inherent conflict that arises when personal financial pursuits intersect with professional responsibilities.