Should Indirect Brokerage Fees Be Capped? Lessons from Mutual Fund Marketing and Distribution Expenses
Theory predicts that capping brokers’ compensation exacerbates the exploitation of retail investors. We show that regulated caps on mutual fund 12b-1 fees, effectively sales commissions, are associated with negative equity fund performance, but only after a structural shift toward maximum permitted...
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| Veröffentlicht in: | Journal of financial and quantitative analysis 2017-04, Vol.52 (2), p.781-809 |
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| container_end_page | 809 |
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| container_issue | 2 |
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| container_title | Journal of financial and quantitative analysis |
| container_volume | 52 |
| creator | Oh, Natalie Y. Parwada, Jerry T. Tan, Eric K. M. |
| description | Theory predicts that capping brokers’ compensation exacerbates the exploitation of retail investors. We show that regulated caps on mutual fund 12b-1 fees, effectively sales commissions, are associated with negative equity fund performance, but only after a structural shift toward maximum permitted levels of the fees around 2000. Past this break point, flow–performance sensitivity shifts from the middle- to the highest-performing funds, suggesting that the fee cap increases performance-chasing behavior by constraining brokers’ incentives to learn about lower-ranked funds. The policy implication is that regulators must reevaluate the efficacy of caps on brokerage fees. |
| doi_str_mv | 10.1017/S0022109017000060 |
| format | Article |
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The policy implication is that regulators must reevaluate the efficacy of caps on brokerage fees.</description><subject>Advisors</subject><subject>Brokerage</subject><subject>Compensation</subject><subject>Conflicts of interest</subject><subject>Costs</subject><subject>Equity</subject><subject>Equity funds</subject><subject>Fees & charges</subject><subject>Financial literacy</subject><subject>Financial management</subject><subject>Households</subject><subject>Hypotheses</subject><subject>Incentives</subject><subject>Investment advisors</subject><subject>Load</subject><subject>Marketing</subject><subject>Quantitative analysis</subject><subject>Regulation of financial institutions</subject><subject>Stock brokers</subject><issn>0022-1090</issn><issn>1756-6916</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2017</creationdate><recordtype>article</recordtype><sourceid>BENPR</sourceid><recordid>eNp1UM1LwzAUD6LgnP4BHoSA52qStsl6Ep2bDjY8TM_ltXmZ3UdTkxb0vzdlQw_iu7z3-H3Bj5BLzm444-p2yZgQnGXhZmEkOyIDrlIZyYzLYzLo4ajHT8mZ9-ueIwQbELN8t91W01mtK4dlSx-c3aCDFdIpoqcPSMfQNKjv6By9t7WnxtkdXXRtB1s67WpNF-A22Fb1ikL4Hivfuqro2srWdPLZYO3Rn5MTA1uPF4c9JG_Tyev4OZq_PM3G9_OojKVg0YhhKaAQYLSMS86LgidgZJGlSWJSprIClAKtRSKyFBmHBLRhRnOtQOiYxUNyvfdtnP3o0Lf52nauDpG5UCMVKhJJHFh8zyqd9d6hyRtX7cB95ZzlfZ35nzqD5mqvWfvWuh-BkFwmkquAxwdP2BWu0iv8jf7f9RuDZIA_</recordid><startdate>20170401</startdate><enddate>20170401</enddate><creator>Oh, Natalie Y.</creator><creator>Parwada, Jerry T.</creator><creator>Tan, Eric K. 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| fulltext | fulltext |
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| ispartof | Journal of financial and quantitative analysis, 2017-04, Vol.52 (2), p.781-809 |
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| language | eng |
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| source | Jstor Complete Legacy; Cambridge Journals Online; EBSCO Business Source Complete |
| subjects | Advisors Brokerage Compensation Conflicts of interest Costs Equity Equity funds Fees & charges Financial literacy Financial management Households Hypotheses Incentives Investment advisors Load Marketing Quantitative analysis Regulation of financial institutions Stock brokers |
| title | Should Indirect Brokerage Fees Be Capped? Lessons from Mutual Fund Marketing and Distribution Expenses |
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