WealthManagement Magazine

If You Cant Beat Em, Pay Em

American Funds, the nations third-largest fund company, may begin to share some of its fees with brokerage firms in a so-called revenue-sharing deal.The arrangements are common in the industry, but American Funds, with its popular stable of products, has had enough clout to hold out, at least until now. If it does any deals, the fund company is promising to get something in return--and even disclose

American Funds, the nations third-largest fund company, may begin to share some of its fees with brokerage firms in a so-called revenue-sharing deal.

The arrangements are common in the industry, but American Funds, with its popular stable of products, has had enough clout to hold out, at least until now. If it does any deals, the fund company is promising to get something in return--and even disclose these normally secret payments.

A spokesperson for American Funds confirms that the issue has been raised at the firm and that James Rothenberg, president of American Funds management arm, Capital Research & Management in Los Angeles, has spoken about the disclosure issue of such fees at a recent conference.

The issue was raised of, if those payments were offered, would they be disclosed? And he said yes, says James Lawrence, the spokesperson.

Lawrence says such persistency payments have been resisted at the firm in the past but refused to comment on why or whether there has been a change in policy. Id rather not get into that, says Lawrence.

Some revenue-sharing deals are based on how long fund assets are held by customers, and therefore are called persistency payments. Fund companies typically pay 20 to 40 basis points to broker/dealers on assets that have aged a certain number of years. Brokers do not share in these payments, nor are they specifically disclosed.

One mutual fund analyst, Geoff Bobroff, president of Bobroff Consulting in East Greenwich, R.I., says American Funds participation in such programs would be a drastic departure for the firm.

Im not sure they have a lot of choice but to do this, says Bobroff, who counts American Funds as one of his clients. From a company standpoint, the persistency concept makes a lot of sense, but the fund group has always tried to wear the white hat and do the right thing by the broker and the client--not necessarily the brokerage firm. So some of their brokerage relationships are frayed.

American Funds says any fee-sharing deal it enters into would be disclosed in a particular mutual funds prospectus. Lawrence says while there is much talk about the practice, the firm has no immediate plans to begin a revenue-sharing program with any brokerage.

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