Could someone please help me understand how to arrive at an answer to this question I came across? A offers emerging mkt research for B in exchange for prospective client referrals and Euro equity research. Clients of A are not made aware of the arrangement with B, but clients rave about high quality research from B. As a result of that research, non-discretionary account clients make a load of money. Managers at A also have used the research to earn money for their discretionary accounts. A most likely: 1. not violated code and standards 2. violated code and S by using 3rd party research in discretionary accounts 3. violated code and S by failing to disclose referral agreement with B. So I am wondering, a client would have made money in emerging mkt or Euro equity. Even though they are clients of A, they seem to know that Euro research comes from B. And they get their emerging mkt research from A (although A is giving that research to B, why would it want clients to belive that research is coming from B?). So why is there a violation if they make money from either research? The answer apparently is 3.
prodigal Wrote: ------------------------------------------------------- > Could someone please help me understand how to > arrive at an answer to this question I came > across? > > A offers emerging mkt research for B in exchange > for prospective client > > referrals and Euro equity research. Clients of A > are not made aware of the > > arrangement with B, but clients rave about high > quality research from B. As a > > result of that research, non-discretionary account > clients make a load of > > money. Managers at A also have used the research > to earn money for their > > discretionary accounts. A most likely: > 1. not violated code and standards > 2. violated code and S by using 3rd party research > in discretionary accounts > 3. violated code and S by failing to disclose > referral agreement with B. > > So I am wondering, a client would have made money > in emerging mkt or Euro > > equity. Even though they are clients of A, they > seem to know that Euro > > research comes from B. And they get their emerging > mkt research from A > > (although A is giving that research to B, why > would it want clients to belive > > that research is coming from B?). So why is there > a violation if they make > > money from either research? The answer apparently > is 3. It says “Clients of A are not made aware of the arrangement with B” so apparently, A passes on B’s research as his own. Not cool. You do not mislead your client about your abilities and have to disclose if you are using another’s research, repackaging research of lots of other people, using research of someone else in your own company etc
they might not necessarily be passing it off as their own- the key is REFERRALS. If I am an investment manager (buy-side) and some sell-side research shop/boutique broker dealer gives me research in exchange for me referring them clients, and I do not disclose it, that is a conflict of interest. Not sure where you got a question this terribly worded but that’s how I interpreted it
Anish and Andrew, A is not passing B’s research as its own. A and B perform research on two different markets and clients of A know the source of each research. If clients clearly know the sources, then where does the question of conflict of interest arise? If B is referring John to A and John knows where the expertise of A and B lies then how is A or B doing uncool things? I agree it is a terribly worded question but it’s been bothering me. P
Sorry i was a little unclear on the conflicts of interest part. If I am referring someone clients in exchange for them giving me research, then if I stop sending them clients, they will probably stop sending me research, and then my clients get screwed. Does that help? Same thing if I send all my trades to a broker/dealer in exchange for them sending ME (THE INVESTMENT MANAGER) clients. If they stop sending me clients, i’ll go trade with some other trader monkey. Capice?
Agree with Andrew. I think this is nothing to do with the research itself – it’s all about the referral fee. If you have any kind of referral deal (cash or other) you have to disclose it. Cheers!