FINRA Moves Forward On Controversial Fund/Advisor Revenue-Sharing Disclosure

Friday, May 13, 2011 06:26
FINRA Moves Forward On Controversial Fund/Advisor Revenue-Sharing Disclosure

Tags: FINRA | mutual funds

Years after initially proposing a rule that mandates centralized public disclosure of all mutual fund revenue-sharing arrangements, FINRA has filed the paperwork to make it happen.

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At the moment, broker-dealers only have to reveal which fund companies pay them in the small print.


But as part of its ongoing consolidation of the rules it inherited from the NASD days, FINRA wants them to set up a website or toll-free number that shows the world exactly what cash compensation relationships each firm has with each fund company.


"Preferred" fund vendors would also need to be flagged, making those relationships transparent to all clients, prospects, and the public.


In theory, this could pave the way to setting up "fiduciary watchdogs" who monitor fund sales activities for conflicts of interest.


FINRA tried to institute this change two years ago, but at the time brokers argued that it would be too confusing to their clients.



Comments (1)

Frankly, as an advisor who works to understand fees of all types, I believe that this kind of disclosure will frustrate clients. As an advisor, it's almost impossible to understand fees even when you think you know where to look. And, if funds like American Funds, keep creating more share classes, the puzzle is just too much trouble to understand. I traded for a client into their F-2 share class and, guess what, had to pay a transaction cost. So, how is that going to be disclosed. This is vs. an F-1 share that has a 25 bp trail. So, does it cost me to do the right thing? If regulators want this to be easier for clients, clean up the share classes and drop 12b1 fees. Over the last 15 years funds that had no 12b1 fees now do. Thanks, that created some revenue for me that I now need to cover increased cost of doing business. I don't know the solution but I don't think the regulators understand how complicated the industry has become. Client get tired, as do reps, in trying to understand fees! Now, you want us to explain it. Not an easy task, even for one who had the desire to do so.
pmcneilly , May 14, 2011

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