Paying For Shelf Space & The Toothless SEC For those of you who don't know, I came from the brokerage industry. I served time at three major brokerage oufits, Merrill, Morgan Stanley, & Smith Barney. Each of these firms favored certain fund companies - no surprise that the funds they favored were "loaded" funds. I knew for a fact that these "favored" funds had arrangements with the company and were paying the company a fee for having a "favored" status, everybody knew it. The correct term is "paying for shelf space." It is the practice of paying a broker/Dealer (industry speak for a brokerage firm) to put your fund company on a favored list - it is a classic "pay to play scheme". The arrangements are never explicitly disclosed, but every broker knows they exist in one form or another - if they don't then they are either ignorant or plain stupid. The SEC just released a study saying that it found abuses at 13 of 15 unnamed brokerage firms in a probe of "revenue-sharing." Here's the funny part, foxnews.com reports "As scandals simmered across the $7-trillion mutual fund business, the SEC said it found that "revenue sharing" -- or mutual funds paying brokerages to tout the funds' shares -- is "common practice," based on a probe launched in April 2003." The funny thing is the probe was only launched about 9 months ago, despite the fact that the SEC knew this was going on for probably at least a decade, if not more. Why did the SEC all of a sudden launch this probe? Elliot Spitzer. The NY State Attorney General Elliot Spitzer has ruthlessly gone after fund companies and broker/dealer for conflicts of interest - had the AG not stepped in the SEC would never had started a probe and none of the enforcement activities would be happening. The SEC has not did its job for years and now is trying to play catch up with Elliot Spitzer in order to save face.
Wednesday January 14, 2004
Wednesday January 14, 2004
Wednesday January 14, 2004
Paying For Shelf Space & The Toothless SEC For those of you who don't know, I came from the brokerage industry. I served time at three major brokerage oufits, Merrill, Morgan Stanley, & Smith Barney. Each of these firms favored certain fund companies - no surprise that the funds they favored were "loaded" funds. I knew for a fact that these "favored" funds had arrangements with the company and were paying the company a fee for having a "favored" status, everybody knew it. The correct term is "paying for shelf space." It is the practice of paying a broker/Dealer (industry speak for a brokerage firm) to put your fund company on a favored list - it is a classic "pay to play scheme". The arrangements are never explicitly disclosed, but every broker knows they exist in one form or another - if they don't then they are either ignorant or plain stupid. The SEC just released a study saying that it found abuses at 13 of 15 unnamed brokerage firms in a probe of "revenue-sharing." Here's the funny part, foxnews.com reports "As scandals simmered across the $7-trillion mutual fund business, the SEC said it found that "revenue sharing" -- or mutual funds paying brokerages to tout the funds' shares -- is "common practice," based on a probe launched in April 2003." The funny thing is the probe was only launched about 9 months ago, despite the fact that the SEC knew this was going on for probably at least a decade, if not more. Why did the SEC all of a sudden launch this probe? Elliot Spitzer. The NY State Attorney General Elliot Spitzer has ruthlessly gone after fund companies and broker/dealer for conflicts of interest - had the AG not stepped in the SEC would never had started a probe and none of the enforcement activities would be happening. The SEC has not did its job for years and now is trying to play catch up with Elliot Spitzer in order to save face.