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Impact Of Compensation And Bonus Policies

How do compensation and bonus policies impact an Investment Advisor's ethical decision making?

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Recently, the Financial Industry Regulatory Authority proposed a rule that required all financial services to disclose any hiring bonuses for their advisors. Some of these bonuses are very high. The problem is that this could cause a conflict of interest if these newly hired people then go to former clients and get them to switch to the new firm. Some of these "enhanced compensation practices" are designed to give the impression that the new hire must sell a very high number of investment packages to justify this additional outlay of cash. In turn, this could cause the new hire to push questionable packages just for the sake of making a quick sale.

In 2012, Merrill-Lynch offered a new set of incentives for selling certain types of securities. In their case, it is fee-based assets in particular. Rewards will be given to those brokers and advisors who increase fee-based sales by 10% or more and by at least $5 million. Fee-based investments refer to those arrangements that compensate ...

Solution Summary

The impact of compensation and bonus policies are determined.