Topics in Mutual Fund Revenue Sharing
20 Pages Posted: 23 May 2016 Last revised: 3 Nov 2019
Date Written: April 5, 2016
Abstract
In conclusion, Haslem [2016] summarizes the numerous attributes and implications of revenue sharing payments: (1) reward brokers for high and higher sales and/or asset holdings of fund shares and further defray current and higher broker costs of advertising and promotion, ongoing broker servicing of fund investor accounts, and educational support; (2) resulting higher broker sales increase fund assets under management (higher inflows) and profits; (3) higher broker sales of fund shares increase sales concessions and distribution fees; (4) higher assets under management increase trade size and broker commissions, trade execution, and profits; (5) “direct” payments from fund adviser “profits,“ but may be bundled in fund management fees paid to advisers who "write the checks"; (6) use of management fees to pay revenue sharing increases fund fee size and fund outflows; (7) brokers rebate “fall-out benefits” from "excess" revenue sharing payments directly to fund advisers; (8) fall-out benefits motivate higher revenue sharing payments and higher broker profits; (9) revenue sharing payments via management fees reduce current fund NAVs and shareholder returns; (9) most retail investors unaware of the existence, nature, and costs of revenue sharing payments; and (10) revenue sharing is agency conflicted with shareholder interests and returns.
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