The National Association of Securities Dealers Inc., Washington, is weighing in on mutual fund compensation arrangements.[@@]
The self-regulatory agency is examining 10 to 20 companies in connection with allegations that they may have directed extra commissions to top sellers of certain funds or received extra commissions, according to Roger Sherman, an NASD senior vice president.
The NASD drew attention to the examinations by charging American Funds Distributors, New York, the principal underwriter and distributor of American Funds, in connection with allegations that the company directed about $100 million in brokerage commissions to top sellers of American Funds.
The NASD says it believes American Fund Distributors violated the NASD’s Anti-Reciprocal Rule by directing the payments to about 50 brokerage firms over a 3-year period. The NASD rule is designed to prevent situations in which brokerage commissions, which are assets of mutual fund shareholders, are used to compensate brokerage firms for selling funds’ shares.
The rule has been in effect since July 1973, Sherman says.
The NASD alleges that between 2001 and 2003, AFD calculated “target commissions” that it intended to direct to top sellers of its funds according to a formula based on the prior year’s sales.