Welcome back to the 1st Law Newsletter.

Conflicts of Interest

Conflicts of interest exist everywhere. They are important to understand because when incentives are not aligned, someone is usually being exploited. Keep this idea in mind and recognize when you are involved in a conflict of interest. A few examples follow:

• The bank wants you to save money, but they don’t want to save you money. They make money off of you by lending out ‘your’ money, charging fees, interest on credit cards, and many other financial tools. Please just give me a no-fee checking account and a credit card (that I will pay on time, every time). I need nothing else from the banks and I want to keep the conflict of interest to a minimum.

• Retail trading/ investing brokerage accounts make money when retail traders lose money. Thus, they are incentivized to encourage retail traders into losing decisions. The more trades you execute and the higher your losing rate, the better (for them).

• Insurance companies make more money by paying you less. They want to convince you to buy as much coverage as possible in hopes that you will never claim anything. And when something does go wrong, the insurance company will try to weasel their way out of fair compensation.

The gist: Be careful when being encouraged into action by financial service providers. You often do not want the same things and ‘win’ in different ways.

• You also have conflict of interest with your employer. They want you to do more work for less money. If they can hire somebody cheaper to do the same job, you will get fired. Ideally, you get paid for results. Then both of you want the same thing: personal performance.(since it pays better to have high performers).

I am sure many great careers have been built off of reducing and eliminating conflicts of interest, incentivizing symbiotic behavior, and aligning the goals of all involved parties.

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Thanks for reading!

Lucas