a. Discuss the ethics of this practice.

b. As a consequence of this practice, what is the impact on the MER over the long term? Discuss fully.

To obtain more business, mutual fund companies have made it easier for investors to switch between mutual funds within the same family. For example, if you buy the XYZ Equity Growth Fund, you are able to switch to the XYZ Equity Value Fund at no charge. This feature is particularly beneficial for investors who purchase funds that have a back-end load, since these funds normally charge a fee if you redeem the investment within a certain period of time. In many cases, the same fund may be redeemed as a no-load fund or as a back-end load fund. Investment advisers normally earn more commission for selling a back-end load fund. However, the regular annual service fee on a no-load fund is higher than it is on a back-end load fund. As a result of the free switching rule, some advisers have recommended a back-end load fund and then transferred a portion of the investment during the following year into an identical fund that has a no-load fee structure. By doing this, the adviser is able to maximize his or her commission at the beginning of the trade and during the period that the investor owns the investment.