A:

In the financial industry, double-dipping occurs when a financial professional, such as a broker, places commissioned products into a fee-based account and then makes money from both the commission and the fee.

The financial industry has seen a tremendous increase in managed fee-based accounts like wrap accounts. In a wrap account, a financial firm professionally manages an investor's portfolio for a flat quarterly or annual fee that covers all management costs, administrative expenses and commissions. Managed accounts of this sort originally were created for wealthy clients. However, more investors now have access to wrap accounts because account minimums have dropped to around $25,000, in many cases. Typical fees on these accounts range from 1% to 3% of the client's assets.

An example of double-dipping would be:

An advisor purchases a front-end load mutual fund for a fee-based account that also will pay the advisor a hefty commission. An ethical advisor, because he or she already has earned a fee for account management, would immediately have the client's account credited for the amount of the commission. Failure to do so would be double-dipping.

Double-dipping, although rare, is strongly discouraged by the financial industry at large, which considers the practice to be highly unethical.

(For more on this topic, read How to Pay Your Forex Broker.)

This question was answered by Tony D'Altorio.

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