The common practice of revenue sharing, where mutual fund companies pay brokers to tout their funds to clients, eventually hurts investors, according to Morningstar columnist Eric Jacobson writes. Even though revenue-sharing payments to brokers are made from mutual funds' own coffers and not from the funds' assets, investors are shortchanged because brokers are more likely to promote funds that pay them to do so rather than funds which offer the best deal to investors.

"The reality is that fund companies pay up for precious access to brokers, and those brokers are almost always limited to selling funds that have paid up," Jacobson says. For instance, he points out Merrill Lynch notes that "funds that do not enter into arrangements with Merrill Lynch are generally not offered to clients."

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