An investment management firm is preparing to hire an independent analyst to recommend security selections for the firms portfolio. The firm would like to keep the managers compensation straightforward and predictable. Which of the following best describes the firms situation? The investment management firm wants to hire a: A) buy-side analyst and pay them on ad valorem basis. B) sell-side analyst and pay them on ad valorem basis. C) buy-side analyst and pay them performance-based fees. D) sell-side analyst and pay them performance-based fees. Answer is D. Sell-side analysts often work for an investment bank that uses the research to promote stocks the bank is selling. Sell-side research is also conducted by independent firms available for hire by investment managers. Ad valorem fees are straightforward and predictable. This is useful when the investor is budgeting investment fees. Performance-based fees are more complex to administer. Why isn’t answer Buy-side Analyst? Please explain more clearly than Schweser. Thanks,
In this case the correct answer is B not D. If they were hiring a buy side analyst it would be someone who would work internally at the investment management firm (thus violating the independent criteria in the question). Therefore they want to hire a sell side analyst. For the second part, performance based fees relative to ad-valorem compensation are more complex. so we can eliminate performance based fees and we’re left with answer ‘B’
ah, got it now. you rock.