Brokerage firm A.G. Edwards indicated in an SEC filing this week that it expects its revenue to decline as a result of the ban on directed brokerage by mutual fund companies, the St. Louis Post-Dispatch reports. The firm did not disclose, however, how much of a decline it expects, although it did say that in combination with other regulations, the changes could have "significant and adverse" effects.
The SEC put a ban on directed brokerage primarily for two reasons. First, it can prompt brokers to push inappropriate funds on investors in exchange for fund companies rewarding them with commissions on big blocks of trades. Second, such arrangements may result in higher trading costs at the expense of investors returns because funds become more focused on sales opportunities, rather than costs. The ban took effect this past Wednesday, but firms have until Dec. 13 to fully comply.