In the world of investment advisors, there exists certain kinds of pay that earn the name "conflicted compensation." We know...it sounds like a paycheck that needs a psychiatrist. Rather, these represent kinds of compensation that might cause some conflict of interest for the investment advisor.
For instance, if an advisor overseeing your retirement account got paid each time they made a transaction, that could lead to a conflict. The advisor would have an incentive to make transactions and might be tempted to churn things a bit just to run up these kinds of payments.
So, in general, "conflicted compensation" is banned by industry standards. However, an exception can be made if the advisor gets a best-interest contract exemption. The goal of the rule is to allow other types of financial professionals, like broker dealers, to participate in retirement investing.
If certain requirements are met, and if the investor signs a document allowing it, a BICE can open up certain kinds of commissions and fees that would otherwise be considered inappropriate.
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Finance: What is Compensation: Advisory ...2 Views
Finance a la shmoop what are advisory fee limits? well they're basically a
price ceiling above which financial advisors can't go yeah I can't go they [Financial advisors in an elevator and hit price ceiling]
can't touch that ceiling you know like hammer time, can't touch this...
so when you invest in a mutual fund you pay two fees there's a commission
and there's an annual management fee usually based on the assets you have
with them under management like maybe it's one percent on the first hundred [Asset rises]
grand that you have and then half a percent above a million or whatever
but there is a third and insidious fee element in the world called advisory
fees like how do you choose which fund to buy well if you have a financial
advisor they'll walk you through the lists of mutual funds out there and [Ice cream flavors appear]
index funds and all other set of funds as well well they're like a gazillion of
them and then that advisor will charge you for their time in some form right
someone's got to pay for their beach house well if you start adding up all
the fees you're paying for arguably no better performance than had you just [Itemized list of fees appear]
logged onto schwab.com or fidelity.com and bought an index fund hmm
well then you're gonna start to pause here it starts to be a big number in
those fees that eat meaningfully into your investment returns most buyers of [Pacman fees eating up money]
mutual funds are not financial gurus yeah not like that they're doctors and
lawyers and plumbing parts distributors and they really don't have a
sophisticated understanding of just how badly they could get taken by
unscrupulous financial advisors so the industry placed a series of structured
limits to keep the non gurus safe from the financial predators when it comes to
compensation and fee limits you know on advisory services and predators like [Tiger walking by]
this guy
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