American Funds Fine

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May 4, 2008 12:08 pm

The quotes come from the story on the home page of this site.


"FINRA let a 2006 case stand that found American Funds Distributors guilty of unfairly compensating brokerages that sold the funds. American will have to pay a $5-million fine. FINRA says American behavior wasn’t “egregious,” and no shareholders were harmed, but that American nevertheless had a conflict of interest with 46 broker/dealers in using directed brokerage. (American paid about $98 million in fees from 2001 to 2003, FINRA says.) It should be noted that directed brokerage was a common practice for years. This was never hidden from regulators, and was sometimes disclosed to investors in prospectuses—well, buried might be a more accurate description of the disclosure."        
 
Does this make any sense to anyone?  The regulators were told that they were doing this and it didn't cost investors a penny.  Why would they be fined?   Is there any good reason for this other than to line the coffers of FINRA?             
May 4, 2008 3:17 pm

If you're allowed to compensate the reps directly for selling your products then what is the point of regulating gifts?

May 4, 2008 9:37 pm

MLurative, what are you talking about?  Do you think that registered reps got compensated for directed brokerage?

May 4, 2008 10:00 pm

I don't get it. I guess the backwards sort of point of view is that brokerages would direct more business to AMF, since they are directing business to the brokerages.



I don't know. I think this is a case of AMF being victim of the necessary over-regulation in the industry. Unfortunately, without heavy regulation, abuse runs rampant.



I guess my question would be, if AMF has to direct brokerage somewhere, what other criteria would they use to direct their brokerage activity, other than whoever gives them business?? And they were spreading it among like 45 different firms. Not exactly playing favorites.