A mutual fund that pays a brokerage firm to be on the firm's "preferred" group of investments list may receive up to 10 times the amount of money as a fund not listed with the brokerage firm, according to new research from
This practice, commonly known as revenue sharing, is legal but offers no transparency, which has led regulators to debate on whether it hurts investors. Competition among funds to get on firms' list is fierce, Cerulli's research says, with favored funds receiving, on average, three-times greater inflows than funds not on the list.
Regulators found, for instance, that at the brokerage firm
Late last year, the
Cerulli's research shows that for smaller fund companies, it generally costs less to pay firms to sell their funds than to sell those funds through an in-house sales force.
While a few firms such as
Although the debate on revenue sharing continues, the mutual fund industry is not expecting this practice to disappear any time