SEC Examines Fund Payments to Brokerage Firms

Posted on September 12th, 2014 at 11:27 AM

From the Desk of Jim Eccleston at Eccleston Law Offices

The SEC has begun a review of fees paid by mutual funds to brokerages and their financial advisors to encourage fund sales. Unfortunately, the SEC has found that those fees are not clearly disclosed under regulators’ current requirements.

There are no clear standards on what information brokerage firms, financial advisers and mutual funds need to tell investors about fees, leading to a great disparity in what they disclose in regulatory filings and on trade confirmations. A final analysis of the fee infrastructure and disclosure holes is expected to be completed by year-end. That could lead to an overhaul of how the industry pays for sales and how the brokerage industry discloses the bounty it collects. 

In recent years, brokerage firms have demanded more sales support and payments than ever before from their fund partners. Brokers also are leaning on fund companies to pay for record-keeping services that traditionally were provided by third-party firms. In addition, fund companies have acquiesced to paying higher fees in order to appear on brokerage firms' recommended lists. While all that is transpiring, however, investors are told that financial advisers' pay is not tied to sales of specific funds, and that the selection of funds is based on quantitative and qualitative criteria.

There is no industry-wide data on how much money changes hands every year between mutual fund companies and U.S. brokerage firms, but a review of individual disclosures show they can add up. Morgan Stanley, which has one of the most detailed disclosures in the industry, last year received $25.3 million from 39 companies to be "Fund Family Partners". That relationship allows fund companies to "receive supplemental sales information and additional opportunities to sponsor firm events and promote their funds to our financial advisors and clients." Morgan Stanley also received at least another $250,000 from each of 104 fund families in "shelf space" fees.

Likewise, Ameriprise Financial Services last year received more than $210 million from 29 fund companies for shelf space and conference support. Ameriprise did not disclose how much it received from about 270 other fund families whose products also can be bought via its sales force. 

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston


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I just received this letter from the CFP Board. Thank you, Thank you, THANK YOU!

David Y


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