Ethics | Research Payments

[allalongthewatc]

“KB is a junior portfolio manager for high-net-worth portfolios at a large global investment manager. She observes a number of new portfolios and relationships coming from a country in Europe where the firm did not have previous business and is told that a broker in that country is responsible for this new business. At a meeting on allocation of research resources to third-party research firms, KB notes that this broker has been added to the list and is allocated payments for research. However, she knows the portfolios do not invest in securities
in the broker’s country, and she has not seen any research come from this broker. KB asks her supervisor about the name being on the list and is told that someone in marketing is receiving the research and that the name being on the list is OK. She believes that what may be going on is that the broker is being paid for new business through the inappropriate research payments, and she wishes to dissociate from the misconduct.”
This is from Curriculum. Can someone please explain the relationship between “research payments” and “commission”? What’s unethical here?

 

[krokodilizm]

The idea is that any commissions paid to the broker for extra services such as research must directly benefit the client because it is the client’s money you are paying with. In this case the beneficiary of the research is someone in the marketing department so the brokder’s research doesn’t really benefit the client and hence it is a violation of Standard III (A) - Loyalty, Prudence and Care.