Enterprise Group of Funds of Atlanta is offering three broker/dealer affiliates a bigger payday for selling certain shares of its mutual funds. Although "reallowance," or full-commission payouts, are a common practice, some financial planners question whether or not they're ethical.

Through the end of the year, the company will pay what's called full reallowance to three firms which, along with Enterprise, are all part of the MONY Group of New York: MONY Securities, The Advest Group and Trusted Securities Advisors.

Under the arrangement, brokerages that sell A shares of Enterprise funds will pocket the full commission. This usually means a higher payout, as well, for individual reps at the point of sale. Enterprise A shares carry a maximum sales load of 4.75%.

Fund companies routinely offer full reallowances for a few months in an effort to goose sales. It's commonly used as a remedy for the summer sales doldrums, or to lure in IRA assets during tax season.

Franklin Templeton of San Mateo, Calif., and SunAmerica of Los Angeles have also recently started full reallowance periods.

But some financial planners worry that the practice can create a conflict of interest in which advisers are tempted to make a recommendation based on their payout rather than what's in the client's best interest.

"My take is that it's negative," said Harold Evensky, a certified financial planner in Coral Gables, Fla. "It tends to undermine the ability of advisers to be independent. It's like the whole soft-money issue."

Evensky added that he has worked with wirehouses and has defended the commission structure, but said it's "clearly a potential conflict of interest when you've got financial incentives to pick a certain fund."

As for investors, they're "clueless" as to the possible conflict, Evensky said. "They're generally clueless about the fees they're paying to begin with," he said.

Full reallowances are noted in prospectus stickers, but investors are notoriously indifferent to reading them.

As for the fund firms, they know their competitors do it, so they're only following suit.

Catherine McClellan, senior vice president at Enterprise Capital Management, said, "Enterprise has a lot of relationships with various broker/dealers, and from time to time we offer temporary reallowances to these firms. It is a fairly common pricing initiative among mutual fund providers."

Mercer Bullard, a fund industry watchdog based in Chevy Chase, Md., said that regulators are asleep at the wheel on the issue. "The Securities and Exchange Commission does a poor job of disclosing brokers' conflicts of interest in selling mutual fund shares," he said.

A double standard exists, he said, because the confirmation document shows the exact broker commissions paid for sales of individual securities, but not for mutual funds. "It's a real Achilles' heel in the conflict-disclosure scheme," he said.

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