Brokerage firm Edward D. Jones said it could face regulatory action and fines for recommending some funds over others without revealing to customers the financial incentives it received to give such advice, Reuters reports.

The Jones Financial Companies, parent of Edward D. Jones, said Securities and Exchange Commission staff informed the firm that it is "considering recommending" enforcement action in connection to the firm’s mutual fund sales practices, according to a regulatory filing. Additionally, the firm said the NASD has joined the fight, recommending an enforcement action be taken against St. Louis-based firm.

The firm reaped $89.9 million from revenue-sharing arrangements in 2003 and $85.9 million in 2002, according to the filing, its first disclosure of revenue sharing. Jones also issued a statement saying it is "cooperating fully" with the authorities. While it perfectly legal for a fund company to have such an arrangement with a brokerage firm, such arrangements must be fulling disclosed to investors.

Jones gives "preferred status" to seven fund families, according to its Web site, but does not explain the financial particulars of the arrangements. These seven are, in order of Jones’ listing: Goldman Sachs, American Funds, Federated, Putnam Investments, Van Kampen, The Hartford and Lord Abbett.

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