Although the Securities and Exchange Commission sued Edward Jones for $75 million in 2004 for not disclosing revenue-sharing agreements with a select group of mutual funds, the brokerage has continued the practice, and quite profitably.
Last year, Edward Jones reaped $172.3 million in revenue-sharing fees from its "preferred" list of mutual funds, more than double previous years, the St. Louis Post-Dispatch reports.
Of course, the firm now discloses the practice, whereby it is completely legal. In fact, the brokerage tells customers on its website that virtually all of the funds on its preferred list pay it to be on that list. "The firm does not receive any significant amount of revenue-sharing payments from any nonpreferred mutual fund families," the website says.
In the case with the SEC, Edward Jones revealed that most of its revenue-sharing agreements with eight mutual fund companies were based on asset-based fees ranging between $3.06 and $14 for every $10,000 invested in their funds through the brokerage. Hartford Investment Financial Services evidently sold the most mutual funds through Edward Jones, paying the company $90.1 million in revenue-sharing fees in 2004. American Funds paid the second-highest amount, $35 million.
In other agreements, fund companies paid Edward Jones fees based on sales purchases, rather than asset balances. The brokerage has since discontinued this practice.
Meanwhile, nine separate class-action lawsuits against the firm for accepting $375 million in revenue-sharing fees between 1999 and 2004 without disclosing them to investors, are near completion, court documents show. The plaintiffs want Edward Jones to return that money.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.