Question

ABC Advisors Inc. is an investment advisory firm that charges clients an annual fee of 1% of assets for their advisory services. ABC is approached by XYZ broker-dealer who offers to pay ABC trailing commissions on all mutual funds purchased through the broker-dealer. This would allow ABC to make additional revenue from mutual fund customers. Which of the following is true pertaining to such arrangements?[A] If IA clients receive full disclosure about the asset-based fees as well as the commission-based fees, the arrangement is allowed.[B] Only when proper approval has been received from the broker/dealer would an arrangement such as this be allowed.[C] There is no scenario where commission compensation is allowed to be paid to an IA.[D] If the IA is receiving commissions on top of the normal asset-based fees, this arrangement is prohibited under any circumstances.

Answer 1

Answer: a) If IA clients receive full disclosure about the asset-based fees as well as the commission-based fees, the arrangement is allowed

Step-by-step explanation:

Any arrangement noted or implemented by the company offering the services has to be firstly communicated to their client which the service is offered to. The document which their client would sign has to have all these details and there should be an agreement between both parties. Carrying out such plan without the knowledge of the client would be a form of theft.

The client receive full disclosure about the asset-based fees as well as the commission-based fees, the arrangement is allowe.