What is CMFI? We are a shareholder advocacy organization dedicated to promoting the interests, needs, and concerns of individual mutual fund investors. Learn more
The Coalition of Mutual Fund Investors (CMFI) has uncovered several practices being used by large broker-dealers to increase their revenues from mutual fund activities. CMFI estimates that these practices are imposing annual costs on individual investors of as much as: (1) $2.2 billion in account maintenance charges, (2) more than $4.18 billion in shareholder servicing payments, and (3) more than $2.09 billion in revenue-sharing payments.
On August 18, 2010, CMFI released a White Paper which explains in greater detail these broker dealer practices and the harm they are causing to individual investors. The CMFI White Paper also recommends several solutions that will address these practices through regulatory action.
To review a copy of this CMFI White Paper, entitled "The Costs of Providing Shareholder Services to Hidden Mutual Fund Accounts," click on the following link: http://www.investorscoalition.comlCMFIWhitePaperAugI8.pdf.
As the primary distributors of fund shares, large broker-dealers have substantial leverage over mutual funds. These broker-dealers are using this leverage to convert individual mutual fund accounts onto the "street name" accounting platforms they operate. This conversion allows certain mutual fund shareholder accounts to reside only on the books of broker-dealers, creating an opportunity for brokerage firms to charge significant fees
to mutual funds and their individual investors, in addition to the fees already being charged for sales and distribution. The fees charged by broker-dealers for maintaining shareholder accounts are primarily paid by mutual funds as an expense from fund assets, thereby imposing costs on
shareholders who have no customer relationship with these brokerage firms. These fees are also being paid for account maintenance and shareholder servicing activities that under existing regulatory rules are already the responsibility of broker-dealers to perform for their customers.
Remarkably, the payment of these fees to broker-dealers is not creating additional protections for individual investors. In fact, the opposite is taking place, as trading activities and investor identities within these broker-controlled shareholder accounts remain hidden from mutual fund compliance personnel, as they attempt to apply prospectus policies and procedures in a uniform and consistent manner across shareholder classes. Regulatory action needs to be taken to protect individual investors from these unnecessary costs. And additional steps need to be taken to ensure full transparency within these hidden shareholder accounts.
Thank you for your interest in the Coalition of Mutual Fund Investors. We welcome your comments and feedback after you have had a chance to review this new White Paper on hidden mutual fund account costs.