What do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives

60 Pages Posted: 22 Apr 2009 Last revised: 16 Mar 2012

Susan Kerr Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School

Richard B. Evans

University of Virginia - Darden School of Business

David K. Musto

University of Pennsylvania - Finance Department

Date Written: March 8, 2012

Abstract

We ask whether mutual funds’ flows reflect the incentives of the brokers intermediating them. The incentives we address are those revealed in statutory filings: the brokers’ shares of sales loads and other revenue, and their affiliation with the fund family. We find significant effects of these payments to brokers on funds’ inflows, particularly when the brokers are not affiliated. Tracking these investments forward, we find load sharing, but not revenue sharing, to predict poor performance, consistent with the different incentives these payments impart. We identify one benefit of captive brokerage, which is the recapture of redemptions elsewhere in the family.

Keywords: Brokers, mutual funds, compensation, revenue-sharing

JEL Classification: G23, G24, M31

Suggested Citation

Christoffersen, Susan Kerr and Evans, Richard B. and Musto, David K., What do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives (March 8, 2012). Journal of Finance, Forthcoming; Darden Business School Working Paper No. 1393289. Available at SSRN: https://ssrn.com/abstract=1393289 or http://dx.doi.org/10.2139/ssrn.1393289

Susan E. Christoffersen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416 946 5647 (Phone)
416 971 3048 (Fax)

HOME PAGE: http://www.rotman.utoronto.ca/schristoffersen

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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