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.

  1. How do financial advisors charge fees?

    Learn how financial advisors make their money and how you can make sure they are looking out for your best interests by understanding ... Read Answer >>
Related Articles
  1. Investing

    Wrap It Up: Terms And Benefits Of Managed Money

    Find out if you should have your money managed by professionals.
  2. Financial Advisor

    Fee-Based Brokerage: Will They Work For You?

    Learn the pros and cons of this type of investing and whether it will work for you.
  3. Retirement

    The Rap On Wrap Fees For Retirement Accounts

    If your retirement account is managed under a wrap fee program, you need to consider whether you should pay the fee out of your retirement account balance or out-of-pocket.
  4. Financial Advisor

    Top Reasons Why Advisors Should Go RIA

    The top reasons why advisors should go RIA only.
  5. Investing

    Investors: Your Fees Are Probably Too High

    The lower your fees, the higher your returns. Here's how to find out if you're paying too much for your investments.
  6. Managing Wealth

    Pay Less for Financial Advice

    Here's a look at what you should pay for financial advice and investment management, what you should get for that price and how you can pay less.
  7. Investing

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from dishonest broker practices means knowing how to spot them.
  8. Financial Advisor

    Investment Fees: How to Understand Them

    There can be a variety of fees levied when investing. Here's a look at what they are and how to manage them.
  9. Financial Advisor

    6 Questions to Ask a Financial Advisor

    Here are 6 questions you should ask to get to know a financial advisor before entrusting them with your financial well-being.
  1. Wrap Account

    An account in which a brokerage manages an investor's portfolio ...
  2. Double-Dip Recession

    When gross domestic product (GDP) growth slides back to negative ...
  3. Managed Forex Accounts

    A type of forex account in which a money manager trades the account ...
  4. Advisor Account

    A type of investment account where an investment advisor works ...
  5. Half Commission Man

    A half commission man is an individual who introduces clients ...
  6. Certified Management Accountant - CMA

    An accounting designation whose holder has formally demonstrated ...
Hot Definitions
  1. Wealth Management

    A high-level professional service that combines financial/investment advice, accounting/tax services, retirement planning ...
  2. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  3. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
  4. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  5. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  6. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
Trading Center