US - Mutual funds that pay to be on a broker-dealer's shortlist may receive up to ten times the asset flows, than those mutual funds not listed with a broker, according to research on the practice of "revenue sharing" from Cerulli Associates.
“Mutual Fund Revenue Sharing: Current Practices and Projected Implications” from Boston based Cerulli Associates finds that favoured funds receive, on average, three times the inflows than funds not listed.
The common practice of revenue sharing, where brokers solicit business for mutual fund families, has come under increasing pressure as a result of a series of scandals and hefty settlements with New York State Attorney General Eliot Spitzer.
Most asset managers, while they say that they do not rely on the practice, do implement some form of revenue sharing across most of their distribution agreements. That said, the most commonly accepted forms of revenue sharing and remuneration are under increased regulatory scrutiny, according to Cerulli.
The most visible codified form of remuneration, the 12b-1, continues to be a primary focus, as these fees likely total US$10bn a year.
The report also suggests that the situation could, however, be much more serious in the context of 401(k)s, where 85% of plan sponsors already say that disclosure is not enough—and want their providers to be free of conflicts of interest entirely.
Some firms have moved to proactively disclosure revenue sharing agreements.
But significantly, 47% of advisers said they would be reluctant to sell “preferred” funds if regulators required disclosure of that status.
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