SEC Continues Crackdown On 'Incentive Commissions'

by Glen Shapiro, LawAndTax-News.com, New York

06 September 2004

The US Securities and Exchange Commission is continuing its efforts to crack down on abuses in the mutual fund industry, and recently took steps to outlaw incentive commissions for brokers who recommend certain funds, also known as 'directed brokerage'.

Following payment of a $100 million combined fine by Morgan Stanley and MFS Investment Management over allegations that they failed to disclose such payments, the SEC has put in place rules which will oblige fund managers to disclose conflicts of interest such as the higher commission payments made to brokerages which recommend the firm's investment products.

The regulator has also stipulated that fund companies must disclose to investors how their managers are compensated, and that they must reveal whether the fund manager oversees any other investments sold by the firm.

Speaking at a meeting in Washington last month, SEC chairman, William Donaldson observed that:

"These rules effectively complement the comprehensive mutual reform efforts that have been underway since last fall. I think we now have a system that we ought to give a chance to work and see the improvements I hope it will bring."

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