Is it ethical for the bank to provide this kind of incentive?

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Retrocession. A large private bank employs relationship managers (RMs) who work with high net
worth individuals. The RMs help their clients to manage their substantial wealth, avoid taxes, and so
forth. When the clients invest in certain funds, the fund owners remit retrocession payments to the
bank as a reward. Consequently, the bank provides its RMs a financial incentive to recommend funds
that provide retrocession. In theory, this need not create a conflict of interest for the RMs, because it
could incentivize them to recommend a fund with retrocession only when there is a choice among
equally attractive investments. It is widely suspected, however, that some RMs bias their recommendations
to favor investments that yield them a higher commission. Is it ethical for the bank to provide this
kind of incentive?

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