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RESEARCH
Revenue Sharing Arrangements
(aka “Payment for Shelf Space”)
(View/Hide Article)
This is a common practice amongst brokerage firms where mutual fund companies that pay the brokerage firm get preference in their sales efforts.
Some brokerage firms will continue to offer the funds of non-paying mutual fund families- but will not allow the mutual fund wholesalers to interact with their staff. Some brokerage firms will simply not give non-paying mutual fund companies training materials to their brokers. In essence, this “payment for shelf space” is a payment that the funds must pay for the brokerage firms to push their product, which is eventually extracted from the assets of the mutual funds and the clients who own them.
Click on a link to learn more about each company and their revenue sharing
arrangements.
Edward Jones
"...there are financial incentives associated with the sale of funds from the preferred fund families, Federated Investors [American Funds] and Putnam Investments...creates a potential conflict of interest in the form of an additional financial incentive to the firm, its financial advisors and equity owners in connection with the sale of the funds from these fund families. Virtually all of Edward Jones' transactions relating to mutual funds involve preferred family funds...For the year ended Dec. 31, 2007,
Edward Jones received approximately $125 million in revenue sharing payments from the preferred fund families as designated throughout 2007 and Federated Investors. For that same period, Edward Jones' net income was $508 million."
Almost 25% of Edward Jones net income is derived from payments that
American Funds and Putnam give to sell their product.
Funds: American Funds, Franklin Templeton, Goldman Sachs Funds, Hartford
Mutual Funds, Lord Abbett Funds, Oppenheimer Funds, Van Kampen Investments
Calculation:
View Chart
View Edward Jones Disclosure
Merrill Lynch
"Merrill Lynch receives compensation from fund sponsors for...making Financial Advisors or other employees available for education regarding their funds; sales related reports and other information; and branch office support, including phones, computers, conference rooms, as well as facilities and personnel support for prospectuses and promotional and other materials relating to their funds."
The funds pay Merrill Lynch so that they
can show Merrill Lynch employees how to sell their products. They also pay
for their overhead expenses.
Funds: Not Listed
Calculation: Up to $19 for each position or up to 0.13% annually of the
value of fund shares held in a client's account as well as compensation from
fund sponsors for these services of generally up to 0.25% on a portion of
mutual fund purchases and generally up to 0.10% annually on a portion of
mutual fund assets.
View Merrill Lynch Disclosure
Morgan Stanley
"Fund families make these payments (sometimes referred to as "revenue-sharing payments") in order to receive the opportunity to distribute their funds through Morgan Stanley."
Funds: Aberdeen Funds, AIG SunAmerica Capital Services, Inc., The Alger Funds, Allegiant Funds, AllianceBernstein, American Century Investments, American Funds, Aquila Group of Funds, BlackRock Funds, Calamos Family of Funds, Calvert, Cohen & Steers, Columbia Management, Credit Suisse Funds, Davis Funds, Delaware Investments Family of Funds, Diamond Hill Funds, Dreyfus, DWS Funds, Eagle Family of Funds, Eaton Vance, Evergreen Investments, Federated Investors, Inc., Fidelity Advisor, Fifth Third Asset Management, First American Funds, First Eagle Funds, Forward Emerald Funds, Franklin Templeton Investments, FundVantage Trust, GAMCO Investors, Inc., Goldman Sachs Asset Management, The Hartford Mutual Funds, Henderson Global Funds, Highland Funds, HighMark Funds, Hotchkis and Wiley Funds, ING Funds, Integrity Mutual Funds, Invesco Aim Investments, Ivy Funds, Janus Funds, JennisonDryden and Strategic Partners Mutual Funds, John Hancock Funds, LLC, JPMorgan Funds, Keeley Family of Funds, Kinetics Mutual Funds, Inc., Legg Mason Partners Funds, Lord Abbett, MainStay Funds, Managers Investment Group, MFS Investments, Morgan Stanley Funds,
The Munder Funds, Nationwide Mutual Funds, NATIXIS Funds, Neuberger Berman Funds, Nuveen Investments,
Old Mutual Investment Partners, The Olstein Funds, OppenheimerFunds, The Phoenix Funds, PIMCO Funds &
Allianz Funds, Pioneer Investments, Principal Funds Distributors, Inc., Putnam Investments, RiverSource
Investments, LLC, RS Investments, Rydex Funds Services Inc., Seligman Advisors, Inc., The Sentinel Funds,
Thornburg Investment Management, Touchstone Investments, Transamerica Funds, UBS Funds, Van Eck Global,
Van Kampen Investments, Victory Funds and Wells Fargo Advantage Funds.
Calculation: Up to 0.20% (20 basic points)
View Morgan Stanley Disclosure
Raymond James
"Fund distributors and/or their affiliates may compensate Raymond James for training and education seminars for Raymond James’ associates, financial advisors, clients and potential clients. This may include due diligence meetings regarding their funds, recreational activities or other non-cash items. The representatives of fund companies attend meetings, provide speakers for educational presentations and attend events where they can interact with our financial advisors." ..."These fees do not purchase placement on any preferred product lists or any special positioning or research coverage of funds by Raymond James....Raymond James provides a variety of marketing services and other support to sponsors of mutual funds regarding their funds. These services include, but are not limited to, the provision of: detailed mutual fund information to financial advisors..."
Funds: Not listed.
Calculation: Do not generally exceed $.05 per executed share.
View
Raymond James Disclosure
Robert Baird
"The advisor and/or distributor of fund families that have been identified for inclusion into the
'Baird Mutual Fund Leaders' Program may provide such financial support to Baird….In exchange for such financial support, fund companies that have earned Mutual Fund Leader status
may receive such benefits as:
• Participating in meetings and conference calls with Baird Financial Advisors and home office
personnel
• Speaking and networking opportunities at Baird regional and national forums
• Conducting marketing campaigns tailored to the needs of Baird Financial Advisors
• Participation by Baird Financial Advisors and home office personnel in fund company due
diligence
meetings
• Posting of marketing materials on internal websites accessed by Baird Financial Advisors
• Information regarding Baird Financial Advisors
• Information on fund company market share within Baird"
Funds: AllianceBernstein, Allianz Global Investors, American Funds, Eaton Vance, Franklin Templeton, Goldman Sachs, Hartford, Heritage, John Hancock Funds, Lord Abbett, MFS, Oppenheimer, Pioneer, Putnam and Van Kampen
Calculation: Will not exceed 0.10%
View Robert Baird Disclosure
Smith Barney/Citigroup
"From each fund family we offer, we seek to collect a mutual fund support fee, or what has come to be called a revenue-sharing payment."
Fairly straightforward; To get your funds sold by Citigroup, you have to pay to play.
Funds: American Funds, Legg Mason, Franklin Templeton, Oppenheimer, Lord Abbett, MFS, Van Kampen, Fidelity Advisor, AllianceBernstein, Eaton Vance, Calamos, Putnam, Davis, AIM, Allianz, Hartford, Columbia, Evergreen, Federated, Ivy, IDEX, Thornburg, BlackRock, Pioneer, Nuveen, Scudder, Goldman Sachs, John Hancock, Templeton Offshore, ING, Prudential Financial, Delaware, IXIS Funds, JP Morgan, Cohen and Steers, Mainstay, Dreyfus, Seligman, Gabelli, Olstein, First Eagle, SunAmerica, Henderson, MFS Meridian, Phoenix, Principal Funds, Munder, Janus Advisors, Touchstone, Van Eck, Alger, Schroeder, Fidelity Advisor World, Rydex, Sentinel, Enterprise, Wells Fargo Funds, Frank Russell, Emerald, Victory, Putnam Offshore, American Century, Calvert, Credit Suisse, First America, Heritage, Janus World Fd Plc, Gartmore,Managers, Prudent Bear, Old Mutual Fund Advisor, North Track, Domini, GE, Kensington, RS Funds, Diamond Hill Funds, Highland Funds, Kinetics, Snow Capital, Strong
Calculation: (a) 0.09% per year ($9 per $10,000) on fixed income fund assets held by our clients, and (b) 0.12% per year ($12 per $10,000) on equity, balanced and offshore fund assets held by our clients, subject to a minimum charge of $50,000 per year per fund family, or $25,000 per year for fund families that offer five or fewer funds at Smith Barney.
View Smith Barney/Citigroup Disclosure
UBS Financial Services
"These separate compensation amounts (commonly referred to as "revenue sharing") are based on two components (i) the amount of sales by UBS Financial Services Inc. of a particular mutual fund family to our clients (excluding sales through wrap-fee programs), and (ii) the asset value of a particular mutual fund family's shares held by our clients at UBS Financial Services Inc...UBS Financial Services Inc. determines the level of access to our branches based on our own review and evaluation of mutual funds and fund families. There are multiple factors involved in determining a particular mutual fund's level of access to our branches. Although revenue sharing may be one factor"
Funds: Not listed
Calculation: (i) 0.05% per year (paid quarterly) on all sales of mutual fund shares (excluding sales through wrap-fee programs); (ii) up to 0.10% per year (paid quarterly) of the asset value of all equity mutual fund shares held at UBS Financial Services Inc.; and, (iii) up to 0.075% per year (paid quarterly) of the asset value of all fixed-income mutual fund shares held at UBS Financial Services Inc. (other than money market, institutional and offshore funds).
View UBS Financial Services Disclosure
Wachovia/AG Edwards
"We reserve the right in the future to limit branch access to mutual fund companies that do not provide marketing support or meet other criteria."
Funds: AIM, Alger**, AllianceBernstein, Allianz/PIMCO, American Century, ACM Global Investments*, American Funds***, Aquila, Arrow Funds, AXA/Enterprise, BlackRock/State Street, CDC/IXIS, Calamos, Calvert, Claymore Securities, Cohen & Steers, Columbia, Davis**, Delaware/Lincoln, Dreyfus, Eaton Vance, Eaton Vance Emerald*, Eaton Vance Medallion*, Emerald, Enterprise, Evergreen, Federated, Fidelity Advisors, Fidelity Advisors World*, First Eagle, FPA, Franklin Templeton**, Gartmore, Goldman Sachs, Guardian, Hartford, Henderson Global, Highland Investors, Icon, ING, Invesco*, Investec*, Ivy/Waddell Reid, Janus, Janus International*, Jennison, Dryden, John Hancock, JP Morgan**, Jundt, Kinetics, Kopp, Legg Mason*/Legg Mason, Partners**, Loomis, Lord Abbett, Mainstay, Merrill Lynch, MFS, MFS Meridian*Morgan Stanley*, Munder, Nuveen, Old Mutual Investment, Partners, Olstein, Oppenheimer, Pacific Life, Parvest*, Phoenix, Pioneer**, Principal/WM Funds, Putnam**, River, Source, Rydex, Schroders*, Scudder**, Security Management, 6th Avenue, Seligman**, Sentinel, Skandia Global*, SunAmerica, Thornburg, Touchstone, Transamerica/IDEX, Van Kampen,
Waddell & Reed, Wells Fargo/Strong, WM Funds
Calculation: range as high as 0.12% annually of the dollar value of fund assets under management at Wachovia Securities. The annual payment may be subject to a minimum charge of $25,000 per year per fund family.
View Wachovia/AG Edwards Disclosure
FREE REPORTS
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GUEST CONTRIBUTIONS
Featured in Beacon Hill Investment Advisory Newsletter
(Spring '09)
Tax Time! Get Your IRAs Funded
By John Beneviat
(View/Hide Article)
April Fools and Tax Day, too much fun for one month!
We know this information is not new to you but we hope the
timing may motivate you to do things if you have not. If you
have prepared and finalized your 2008 taxes and tax deferred
investments- kudos to you!
2008 IRA contributions
2008 IRA contributions are due by April 15th. Make sure you
speak to your advisor about how to specifically delineate that
this is a 2008 contribution should you decide to make this contribution
in the next few days. If you have already made a
2008 contribution during 2009,
you may want to be sure it is specified
as a 2008 contribution.
In the event that you have
been living under a rock for the
past decade, IRA contributions are
typically a no brainer decision,
it's a free way to get tax deferral.
A few rules of thumb:
Conventional IRAs: You receive an immediate tax write off, future
gains are deferred (can grow tax free), and you are taxed on the withdrawals.
These are beneficial if you believe your marginal tax rates
will be lower when you start to withdrawal than they will be throughout
your contribution period.
Roth IRAs: You do not receive a tax write off immediately, future
gains are deferred, however, you are NOT taxed on the future withdrawals.
Generally, the longer the funds will be invested, the more
beneficial the deferral and tax free advantages of the Roth vs. the
conventional IRA. A taxpayer who expects to be in a higher tax
bracket at retirement than during the contribution period would favor
a Roth.
A few notes applicable to both: The current limits for contributions
are $5,000 per person. If you are over the age of 50 you may deduct
an additional $1,000. You must have earned-income to contribute.
You must begin making minimum withdrawals as of age 70 ½ (for a
conventional IRA), and cannot take withdrawals without a penalty before 59 ½.
If you or your spouse are covered by an employer retirement plan you
may not be able to deduct all contributions and should speak to an
accountant.
There are many changes occurring this year that will significantly
change the tax landscape in the future. I encourage anyone to review
the changes this year prior to year end. In addition, these broad statements
cannot cover everyone's unique situation.
In addition, there's no reason to wait to contribute for 2009! The
quicker you do it the sooner you start the tax deferral!
John Beneviat has been a practicing accountant for 25 years as
a Partner with Beneviat & Tortora located in Westerville, OH.
John is available for questions or comments at 614-899-1280
x12.
OTHER WRITINGS/PUBLICATIONS
Maintaining Your Safety Cushion - How to protect and get
credit in this economy
B.O.S.S.™ (Business Owners
Strategy Session) Session for February 22, 2010
(View Article)
Retirement Plan Fee Transparency
(View
Brochure)
Final Frontier:
The Quest for Uncorrelated Assets
By Mark Fissel, RFC (7.13.08)
(View/Hide Article)
In constructing a portfolio, one task is to find uncorrelated assets. Correlation measures how an investment moves in relationship to other investments. If it zigs when other investments zig, those two investments are correlated. In reality, most investments are at least mildly correlated. This concept of correlation allows an advisor to put together a portfolio of (relatively) uncorrelated assets to decrease the overall portfolio’s risk, while increasing return through periodic rebalancing.
The last decade has seen an explosion of investments beyond the conventional U.S. and European stock markets into Emerging Markets and other non-conventional assets. For example, since 1980 Harvard University’s endowment fund has decreased the allocation to domestic equities from over 60% to well under 20%, with the best performing asset class for the past 10 years being its private equity portfolio.
Among possible non-conventional assets for inclusion, the stocks from companies in the “Frontier Markets” have been quickly gaining notoriety. Standard & Poor’s defines frontier markets as those with “smaller economies or less developed capital markets than traditional emerging markets.” These markets have had a very low correlation with our domestic markets. Why? Well, do you think a bank in Botswana is concerned about U.S. subprime mortgages?
Risky? You bet. Think you’re seeing inflation? How about an annualized rate of over 10,000% in Zimbabwe! Due to increased economic, political, and trading risks in these markets, they are obviously not the place to stash a majority of your nest egg. Before you choose an investment vehicle, you’ll want to look under the hood first.
These markets have also been on a tear lately. While this won’t continue indefinitely, there may be a place for frontier markets in a sizeable portfolio for the long term.
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