Since the scandals affecting mutual fund trading practices first broke, there’s been a lot of talk in the industry about doing what’s right for shareholders. Boston-based MFS Financial Services is backing up the talk by promising to spend $10 million to $15 million for objective research not tied to trading commissions. In a move designed to shake up business as usual, Robert Pozen, MFS’s recently appointed non-executive chairman, announced that the company will no longer pay for brokerage house research with soft dollars.
While stressing that he believes research is an important tool for fund managers, Pozen told journalists in a conference call on March 16 that not all research is created equal. “If we think outside research is valuable, we’ll pay cash for it,” he said. “Hopefully over time, other people will join us and we will get the [trading] commissions down.”
Right now, MFS doesn’t know the actual value of the third-party research it’s getting; only that shareholders are paying a five-cents-per-share trading commission that includes research, whether they want it or not. Instead, Pozen would like to pay brokerage houses only for executing trades, and separately buy whatever research and other services MFS requires. “We understand that the execution-only price is not going to be five cents a share,” he said.
As far as the value to shareholders, Pozen noted that if the commission could be brought down even one penny per share, that would be worth roughly $80 million to $90 million a year to MFS shareholders. He also noted that MFS would not raise its management fees to cover the estimated $10 million to $15 million a year the company will now spend to buy outside research.