Directed Brokerage vs. Mutual funds
May 4th, 2008
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A directed brokerage is a practice in which mutual fund companies steer trades to brokers as a reward for selling their funds to retail clients.
Many in the industry felt that directed brokerage could be detrimental to mutual fund shareholders, since it had the potential to create incentives for fund managers to direct fund transactions to brokers who were encouraging sales of their funds rather than to the firms that could provide the best execution, or price, on fund transactions. Fees are not going down, because a big part of it is that the middlemen have become very good at extracting
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more money from fund investors and fund companies alike.
The SEC (Securities and Exchange Commission) recently banned directed brokerage because it could create conflicts of interest for mutual fund managers. In directed brokerage arrangements, fund managers would direct portfolio transactions to particular brokerage firms in exchange for promoting their funds. Mutual funds are required by law to seek the best execution for their stock and bond trades. Still, to win limited “shelf space” for their funds at brokerage firms, fund shops often reward broker-dealers by sending them trading business. Ending directed brokerage practices could save investors money on commissions.
Until the SEC banned the practice outright in 2003, directed brokerage was legal as long as all parties complied with certain provisions. The commission is sifting through every aspect of mutual-fund management and behavior
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1. Directed Brokerage vs. Mu&hellip | May 4th, 2008 at 4:08 am
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2. Forex » Directed Br&hellip | May 4th, 2008 at 4:22 am
[…] www.ForexNfo.com wrote an interesting post today onHere’s a quick excerptBrookhaven College: Mortgage Brokerage Frequently Asked Questions … Licensing Exam Preparation ” Mortgage Brokerage Frequently Asked Questions … information online from the Texas Department of Savings and Mortgage Loan. … A directed brokerage is a practice in which mutual fund companies steer trades to brokers as a reward for selling their funds to retail clients. Many in the industry felt that directed brokerage could be detrimental to mutual fund shareholders, since it had the potential to c […]
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