Been reading through the Ethics portion, and was wondering if additional compensation is acceptable so long as it is disclose, regardless of type (excessive or not) and performance (backward or forward looking)?
I believe as long as the compensation is disclosed, and is legal, you are fine. A good example would be the recent SEC case against Goldman. The case was on proper disclosure.
Thanks. I always thought you cant accept if it is excessive even if disclosed. But I’m sure your not suppose to accept if your doing research on the company, which is what I’m mistaken it for.
First remember conflicts occur between the interests of clients, the interests of employers and the members own personal interests. Also best practice is to avoid the conflict all together. If you’re referring to research reports then probably the main consideration, is this compensation, excessive or not, impeding on the members independence and objectivity? Usually one would be best served by rejecting it in the first place if that isn’t possible then an attempt to dissassociate would be appropriate. If the member firm performes iBanking services then they usually earn incentives (options, warrants, shares etc) for closing a deal, then the researh report should disclose any terms as such. If you you’re referring to fund management then disclosure of compensation and how it is structured with respect to AUM or performance etc should be disclosed. If things like this aren’t diclosed then the manager could potentially over look suitability by sttemtpting to make a better return and inturn boosting their compensation. In the Goldman dispute there seemed to be a clear conflict and I think that is evidence of the settlement, but that is up for debate. An interesting stat about that $500 MM, it is approx. 2 weeks worth of Goldman’s high frequency trading profits!! Best bet to nail the concept is to read and re-read the examples in the text.