Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, September 2, 2012

Haslem on Mutual Fund Revenue Sharing

Revenue Sharing Behind the Mutual Fund Curtain, by John A. Haslem,
University of Maryland - Robert H. Smith School of Business, was recently posted on SSRN.  Here is the abstract:

The objective of this study is to take some of the mystery out of mutual fund revenue sharing, but without being able to say that investors have transparent disclosure. Topics include the transition of directed brokerage to revenue sharing, with the pros and cons for funds and brokers. The discussion of revenue sharing payments includes their general nature, "distribution with a difference," and types of payments. Next, are brief discussions of Charles Schwab's revenue sharing arrangements, SEC findings of illegal undisclosed revenue sharing by Edward D. Jones & Company, and the lack of court protections for shareholders charging funds with excessive fees. Finally, traditional versus "defensive 12b-1 plans" are discussed, of which the latter are used to hedge any charges of illegal fund revenue sharing distribution.

It appears that most in the world of regulation and practice of revenue sharing lacks clarity, consistency, proper redress and investor transparency, such as the supposed "direct distribution" of fund adviser revenue sharing payments from fund adviser "profits" that in practice are likely melded in fund management fees and paid to fund advisers as "indirect distribution."

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