Mutual fund distribution payments: navigating the conflicts

Abstract

With over 8,400 mutual funds available to U.S. investors, the battle for shelf space has never been more intense. Fund advisers or “manufacturers” are caught in a classic squeeze by distributors demanding a bigger piece of the revenue pie. In this environment, distributors and investment advisers must deal carefully with the conflicts and SEC concerns that inevitably arise. Financing for fund share distribution, an enormously costly activity, is from three sources: from front‐end and deferred sales charges paid directly by shareholders, from asset‐based sales charges paid by the fund, and from the adviser’s own assets. Reciprocal sales deals should be considered within the context of an adviser’s best‐execution and soft‐dollar policies and procedures. Trading portfolio commissions for fund sales efforts presents conflicts, but the conflicts are manageable if controls are put in place and driven by senior management and legal/compliance staff.

Citation

Knudson, K. (2002), "Mutual fund distribution payments: navigating the conflicts", Journal of Investment Compliance, Vol. 3 No. 3, pp. 25-29. https://doi.org/10.1108/joic.2002.3.3.25