This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

SEC Details Abuses in Fund Sales Practices

The mutual fund scandal took yet another turn on Tuesday when the Securities and Exchange Commission announced it has found widespread abuse in how Wall Street brokerage firms sell mutual funds.

The SEC's nine-month investigation of 15 brokerage firms found that 14 of them received cash from funds' investment advisers. In return for these payments, 13 of the 15 firms appear to have favored the sale of the revenue-sharing funds over other funds by providing increased visibility for the funds in the broker-dealers' sales networks -- such as listings on firms' Web sites, access to sales staff, promotional materials sent to customers, inclusion on "preferred" lists and the like.

These revenue-sharing arrangements are commonly called "paying for shelf space" and aren't illegal. But while fund companies insist such payments are necessary to get brokers to notice their products, critics argue that these arrangements amount to little more than bribes intended to get brokers to push particular products.

Another (related) type of arrangement is that of fund companies' paying additional brokerage commissions on the sale of their funds. Ten of the 15 companies investigated by the SEC accepted revenue-sharing payments in the form of brokerage commissions on fund trades. Revenue-sharing payments vary between 5 and 40 basis points (0.05% and 0.4%) on sales, and from zero to 25 basis points (0.25%) on assets. In other words, for every $100,000 in new sales, a broker-dealer would receive between $50 and $400 annually, and for every $100,000 invested, the broker-dealer would receive up to $250 annually.

Extra payments weren't limited to the funds' slipping the broker-dealer some additional cash, the SEC said. About half of the broker-dealers examined also paid their own registered representatives more when they sold one of the "revenue-sharing" funds or a proprietary fund.

The broker-dealers aren't the only target of the SEC's ongoing investigation. The regulators also will probe eight mutual fund families involved in such transactions. Stephen Cutler, director of the SEC's enforcement division, wouldn't release any names of firms under investigation.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TSLA $212.91 -4.30%
YHOO $37.02 2.80%
AAPL $93.18 -0.47%
FB $118.14 0.07%
GOOG $699.38 0.53%


Chart of I:DJI
DOW 17,697.25 +45.99 0.26%
S&P 500 2,055.71 +4.59 0.22%
NASDAQ 4,733.79 +8.1510 0.17%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs