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The Journal of Wealth Management

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Attributes and Implications of Mutual Fund Revenue Sharing and “Defensive” 12b-1 Fees

John A. Haslem
The Journal of Wealth Management Winter 2019, 22 (3) 134-139; DOI: https://doi.org/10.3905/jwm.2019.1.085
John A. Haslem
is professor emeritus of finance in the Robert H. Smith School of Business at the University of Maryland in College Park, MD.
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Abstract

Revenue sharing rewards brokers for high and higher sales and/or asset holdings of fund shares, and further defrays current and higher broker costs of advertising and promotion, ongoing broker servicing of fund investor accounts, and educational support. It results in higher broker sales and increases fund assets under management (higher inflows) and profits; higher broker sales of fund shares increases sales concessions and distribution fees. Higher assets under management in turn increase trade size and broker commissions, trade execution, and profits. Revenue sharing usually brings direct payments from fund advisor “profits,” but may be bundled in fund management fees paid to advisors who write the checks. The use of management fees to pay revenue sharing increases fund fee size and fund outflows. Brokers rebate “fall-out benefits” from “excess” revenue sharing payments directly to fund advisors, which motivates higher revenue sharing payments and higher broker profits. Revenue sharing payments via management fees reduce current fund NAVs and shareholder returns. Most retail investors are unaware of the existence, nature, and costs of revenue sharing payments. Revenue sharing is agency conflicted with shareholder interests and returns.

TOPICS: Mutual fund performance, wealth management

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The Journal of Wealth Management: 22 (3)
The Journal of Wealth Management
Vol. 22, Issue 3
Winter 2019
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Attributes and Implications of Mutual Fund Revenue Sharing and “Defensive” 12b-1 Fees
John A. Haslem
The Journal of Wealth Management Oct 2019, 22 (3) 134-139; DOI: 10.3905/jwm.2019.1.085

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Attributes and Implications of Mutual Fund Revenue Sharing and “Defensive” 12b-1 Fees
John A. Haslem
The Journal of Wealth Management Oct 2019, 22 (3) 134-139; DOI: 10.3905/jwm.2019.1.085
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  • Article
    • Abstract
    • CONFLICTED REVENUE SHARING PAYMENTS
    • REVENUE SHARING DISTRIBUTION
    • FACILITATING REVENUE SHARING
    • MOTIVATION FOR REVENUE SHARING
    • JUSTIFICATION FOR REVENUE SHARING
    • NATURE OF REVENUE SHARING PAYMENTS
    • REVENUE SHARING SUMMARY
    • DEFENSIVE 12B-1 PLANS AND REVENUE SHARING
    • ADDITIONAL READING
    • REFERENCES
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