What should a financial advisor do upon identifying a conflict of interest?

When a financial advisor identifies a conflict of interest, the appropriate step is to disclose the conflict and recuse themselves from the situation. This approach is rooted in the principles of transparency and integrity which are central to professional ethics in the finance industry. Disclosure ensures that all relevant parties are aware of the potential conflict, allowing them to make informed decisions. Recusal removes the advisor from the decision-making process related to the conflict, which helps to maintain objectivity and avoid any undue influence that could compromise the advisor's professional judgment.

Taking such action protects both the advisor's integrity and the interests of the clients, promoting a culture of trust and ethical behavior. Other options, such as ignoring the conflict or simply consulting a colleague without disclosing the matter to involved parties, can lead to serious ethical violations and damage the trust between advisors and clients. Seeking approval from management might be a part of the process, but it does not replace the more immediate need for disclosure to those affected by the conflict.