This week brought the rare sight of a fund manager publicly disciplined on suspicion of improper influence from brokers that executed his trades. Brokers as well as buy-side traders and portfolio managers would be wise to view London-based Gartmore's suspension of Guillaume Rambourg as an ethical shot across the career bow.
The suspension "shines a light on a murky business where tales of lavish hospitality, nepotism and kickbacks abound," Reuters reports.
While details of Rambourg's alleged breach of internal procedures for directing trades are being kept under wraps pending his employer's probe, the newswire story uses earlier incidents to illustrate the pervasive ethical conflicts that arise in an industry where entertainment is ubiquitous and individual brokers live and die by the quantity of trades they generate. "Brokers and traders in the City of London financial district believe the way fund managers decide which brokers to use for share trades is wide open to abuse," Reuters says.
Regulatory agencies, self-regulatory organizations and professional bodies like the CFA Institute have elaborate codes designed to ensure that fiduciaries place clients' interests ahead of their own when choosing brokers and other service providers. Among other things, the codes generally ban gifts of more than token value and limit the amount and type of entertainment a fiduciary may accept.
Outright kickbacks of commission dollars are strictly taboo - and indeed, such crude abuses probably are quite rare because would-be offenders see them as too risky, Reuters says. But the story unveils other questionable gifts - including a 10 day Caribbean holiday for the 2007 Cricket World Cup that one broker allegedly sponsored for an institutional client.
The story goes on to suggest even charitable donations by brokers on behalf of fund managers raise an ethics flag:
More subtle approaches can include sponsoring a fund manager on charity runs. A glance at sponsorship web site 'justgiving.com' shows brokers pledging four-figure donations to the favoured causes of top fund managers.
Which Broker? The Temptations Of A Fund Manager [Reuters]
UBS' McCann, Turning On Brokerage's Swiss Parent, Says He'll Focus On Advisers [Investment News]
Barnier to Review 'Insane' Bank Pay With Geithner [Bloomberg News]
Barney Frank Permanently Bans Staff From Communicating With Aide-Turned-Lobbyist
The ban on House Financial Services Committee staff talking to Peter Roberson as for long as Frank chairs the committee - rather than the statutory one-year lobbying ban - is another blow against public-to-private sector career moves that resemble a "revolving door."
Pali Holdings Files Bankruptcy After Brokerage Sale Failed [Bloomberg News]
Money Lessons From A Financial Pro [MarketWatch]
An investment advisor details how he manages his own family's assets and budget.
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