This is not the first column I have written about this topic, nor will it be the last. But the argument bears repeating. Across the mutual fund industry (and sometimes with exchange-traded funds as well), revenue sharing is a problem. Quietly, mutual fund companies pay outside parties that help them grow their businesses with shareholder assets. Our money, their benefit. And that needs to stop, entirely.
Revenue sharing occurs within 401(k)s, when fund companies cover a plan’s administration costs. It occurs at full-service brokerages and financial-advisory firms, when funds indirectly buy their way onto recommended lists by spending monies on those companies' advisors. It occurs at discount brokers, when funds underwrite the payments received by no-transaction-fee, or NTF, programs. Whether investing in employee-sponsored plans or IRAs, through financial intermediaries or directly, investors are likely to encounter revenue sharing.
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John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.