The Securities and Exchange Commission's ban on funds directing trades to brokers in exchange for shelf space, or directed brokerage, has mutual fund companies scurrying for new ways to compensate distributors.

"Every fund family recognizes distribution of its products through the brokerage channel is critical. If they cannot compensate broker/dealers through directed brokerage or find other ways, smaller funds will begin to lose shelf space," said Matt Bienfang, a senior analyst with TowerGroup of Needham, Mass. Bienfang explained that many small firms depend on directed brokerage to supplement distribution and once that is halted, the impact will be significant.

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