What do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives
60 Pages Posted: 22 Apr 2009 Last revised: 16 Mar 2012
Date Written: March 8, 2012
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: Suggested Citation