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.
Related or Semi-related Video
Finance: What is a proxy?8 Views
Finance a la Shmoop. What is a proxy? Well it's kind of an approx-i-mate. As in, it's
not exactly the way dogs mate. Not all of them try to text their goodies to each
other. In the land of Finance, a proxy is simply a substitute.
Someone's vote, for example, can be given to another party, who then acts on behalf
of the person, who was going to vote in the first place. But really couldn't care [coffee drive-thru]
less about the outcome, so she went to Dunkin Donuts instead. That's how
most votes are taken in public companies. Proxies are sent out to shareholders, who
then designate their wishes, to then be submitted to an individual, physically
present at the vote, who then you know votes and that's it.
We'll leave you with final warning. Beware of any incoming texts you may get
from a German Shepherd. [Phone with dog text]
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