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Compensation practices for retail sales of mutual funds

Susan S. Krawczyk (Partner, Sutherland, Asbill & Brennan LLP, NW, Washington, DC, USA;

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 1 January 2004



During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had triggered a more in‐depth investigation into mutual fund marketing and compensation practice by securities regulators, Congress, and the states. This article focuses on the regulation of sales compensation practices primarily as it affects a broker‐dealer selling mutual funds in the retail market. It addresses the regulatory framework for three key compensation practices: (1) the use of non‐cash compensation in connection with mutual fund sales; (2) marketing and compensation arrangements providing enhanced compensation to a selling firm as well as to its sales representatives for the promotion of certain fund securities over others, such as proprietary funds over non‐proprietary funds, preferred funds over non‐preferred funds, and Class B shares over Class A shares; and (3) the use of commissions for mutual fund portfolio trades as an additional source of selling compensation for selling firms, a practice sometimes referred to as ”directed brokerage.“



Krawczyk, S.S. (2004), "Compensation practices for retail sales of mutual funds", Journal of Investment Compliance, Vol. 4 No. 4, pp. 27-45.



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