Ethics and Commission

• Date: 01 March 1999
• Published date: 01 March 1999
• Author: Nancy B. Kurland
• DOI: http://doi.org/10.1111/0045-3609.00036

Zicklin Conference

Ethics and Commission

NANCY B. KURLAND

In January, 1988, the phones were quiet. After the blood bath

just months before, investors were afraid to step back into the

market. It was my third month as a full-fledged, series 7-

licensed, straight-commissioned broker. I was 26, single, and poor.

My rent was due, my ego hungry. My firm had a new product for me.

The closed-end bond fund. A neat idea. I could earn 4 cents on the

dollar—not as much as the 8% on mutual funds and the 7.5% on

limited partnerships, but substantially more than the 2.5% for

stocks or 1% on bonds. The closed-end bond fund pooled bonds

and sold shares of this pool to investors. It was similar to a mutual

fund, but unlike a mutual fund, it traded like equity on a stock

exchange. The issuing firm earned high underwriting fees, some-

times 3 cents on the dollar, as well as ongoing management fees for

managing the fund. And not only was my firm offering me a larger

commission to sell the fund, if I sold quite a bit, I’d earn a trip to

Hawaii as well!

I got on the phone and started calling current clients1and cold

calling prospective ones. “I have this new product. Are you

interested?”

“It’s a conservative investment,” I told them. My company had

told me so.

“And you don’t pay any commission because it’s a new issue,” I

added.

I sold quite a bit—although not enough to earn me a trip to

Hawaii. And clients seemed happy—until 3 months later.

© 1999 Center for Business Ethics at Bentley College. Published by Blackwell Publishers,

350 Main Street, Malden, MA 02148, USA, and 108 Cowley Road, Oxford OX4 1JF, UK.

Nancy B. Kurland is an assistant professor at the Marshall School of Business, University of

Southern California, and a former stockbroker.

Business and Society Review 104:1 29–33