Even though revenue-sharing payments come out of a fund's own coffers, the common practice hurts investors because of the bias it creates, attests Morningstar columnist Eric Jacobson. "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 said. For instance, he points out that Merrill Lynch notes that "funds that do not enter into arrangements with Merrill Lynch are generally not offered to clients."

However, Jacobson admits that it is difficult to place blame on mutual fund companies for participating in revenue-sharing arrangements because a good chunk of fund companies sell their funds via intermediaries and "those who try to stay above the fray' would find themselves locked out."

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