What is CMFI? We are a shareholder advocacy organization dedicated to promoting the interests, needs, and concerns of individual mutual fund investors. Learn more
Mutual funds and their advisers pay a number of fees to broker-dealers who are marketing and distributing fund shares. These fees are in addition to sales load charges and cash commissions, which are paid directly by the investor.
Broker-dealers are not typically paid additional fees for holding other securities. For example, a broker-dealer administering a customer account with stocks, bonds, and Exchange-Traded Funds (ETFs) is not paid any ongoing fees by the issuer of these securities. Instead, the broker-dealer is paid through the purchase and sale of each security, either through a cash commission or via the bid/ask spread on a transaction.
Mutual funds are treated differently. Broker-dealers demand from funds and their advisers the payment of a number of fees, including recordkeeping and shareholder servicing payments, Rule 12b-1 fees, and revenue-sharing payments. These fees can really add to the cost of distributing mutual funds. As an example, a customer with 5 different mutual funds in his or her account, may generate for a broker-dealer as much as (1) $125 in annual recordkeeping fees (at $25 per fund); (2).25% of the value of each fund position in Rule 12b-1 fees; and (3) a hefty revenue-sharing payment from the fund adviser. All of these fees can total up to several hundred dollars in payments to the broker-dealer for an account that may only have a few thousand dollars in value.
CMFI wants to hear from investors about these fees. Should some or all of these fees be eliminated? At the very least, should the SEC improve the disclosure to investors of these fees, so that the customers of broker-dealers are aware of these payments and can make decisions based on more accurate information?