When you deal with financial professionals, conflicts of interest come up from time to time. The anti-reciprocal rule exists to prevent one of these conflicts from hurting the client.
For instance, you go into a financial advisor to figure out where to re-invest the $10,000 in Bowie Bonds you found at the bottom of your dad's closet. The advisor immediately suggests a couple of "super-hot" mutual funds that "are absolutely fool-proof guaranteed money makers."
You don't know it, but the mutual fund company has given the advisor a kickback to make this recommendation. In fact, there are hundreds of other mutual funds with the same risk profiles and potential upside, all of them with lower costs than the one that was just recommended. But the advisor doesn't mention these other options because none of those mutual funds have sent a check.That situation is why the anti-reciprocal rule is in place.
The regulation, enacted by the Financial Industry Regulatory Authority, or FINRA, prevents managers of mutual funds and brokers from unduly pushing clients to use each other's products. The rule prevents (or at least theoretically prevents) backroom agreements that hurt investors.
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Finance: What does it mean to have fiduc...51 Views
Finance a la Shmoop! What does it mean to have fiduciary obligation? Alright well
fiduciary refers to the responsible person, who has oversight, above a given
financial transaction, or process. That is, it is the fiduciary obligation, of the
head of a corporation's Audit Committee, to be certain that the
accounting process is handled fairly, objectively, inclusively and thoroughly [boss overseeing worker]
and there are a few other ly's in there, but well you get the gist. Doesn't it
seem strange, that some companies just seem to get into the same kind of
trouble again and again. Remember the BP oil spill, well it wasn't the first time
they'd had, an accident. You know, if you can call that spill only an accident.
What kind of oversight did they have? Any? Well some companies just have a [man carrying oil barrel
corporate culture that's run by the notion, that well, whatever isn't caught
as a crime, is legal. Lots of Wall Street stock brokerages came and went this
way. Yah, remember the Wolf of Wall Street? Kind of like that. Well what is
the obligation of a responsible party when faced with ethical dilemmas? Where
does the obligation start and stop? Should fiduciaries be held to a higher
personal standard than normal people? Yah, kind of the, you know, Harvey
Weinstein effect there. Yes, No, maybe, alright. Right, all three times. [question ABCD chart]
It's definitely yes, no, or maybe.
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