Deals & People July 21, 2010

TD AMERITRADE Says Record Number of Advisers Joining

TD AMERITRADE Institutional said that, so far in 2010, 212 breakaway brokers have chosen the company for back office support.
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This is more than the total number of advisers making the move to independence in all of 2009, a 44% increase from the first three quarters of last year, the company said (see “How Many Brokers Really Went Independent in 2009?”).

Roughly half of the adviser transitions are that of brokers who want to join an established registered investment adviser (RIA) firm, up 34% from the same time last year.

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“We’re adding an average of over one new breakaway broker a business day,” said Tom Bradley, president, TD AMERITRADE Institutional. “The fee-based fiduciary business model of independent registered investment advisers is becoming more attractive to brokers who are tied to legacy technology, proprietary products and sales-driven cultures. Going independent by establishing a firm or joining an existing RIA is the preferred path for advisers.”

Not only are advisers leaving, TD AMERITRADE says assets are migrating as well. According to the latest TD AMERITRADE Institutional RIA Sentiment Survey, advisers report 62% of their new assets are coming from traditional full-commission brokerage firms (see “RIAs Continue to Pull in Clients, Show Optimism for Economic Recovery”).

More information about TD AMERTRADE Institutional can be found at www.tdainstitutional.com.

The Markets July 21, 2010

SEC Proposes Rules on 12b-1 Fees

The Securities and Exchange Commission (SEC) has proposed measures aimed at improving the regulation of mutual fund distribution fees and providing better disclosure for investors.
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In particular, the proposed changes would replace existing provisions, including Rule 12b-1, that allow mutual funds to use their assets to compensate securities professionals who sell shares of the fund.  

The SEC’s proposal would: 

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  • Limit fund sales charges.  
  • Improve transparency of fees.  
  • Encourage retail price competition.  
  • Revise fund director oversight duties. 

SEC Chairman Mary Shapiro called for proposals on 12b-1 fees last year (see “SEC to Make Recommendations on 12b-1 Fees, Target-Date Funds,” “Schapiro Asks Staff to Recommend Changes to 12b-1 Fees“).

The proposal would limit the amount of asset-based sales charges that individual investors pay. A fact sheet said in particular, the proposal would restrict these “ongoing sales charges” to the highest fee charged by the fund for shares that have no ongoing sales charge. For example, if one class of the fund charges a 4% front-end sales charge, another class could not charge more than 4% in total to investors over time. The fund would keep track of how long investors have been paying ongoing sales charges.  

Separately, funds could continue to pay 0.25% per year out of their assets for distribution as “marketing and service” fees, for expenses such as advertising, sales compensation, and services.  

The proposal would require the fund to identify and more clearly disclose distribution fees. In particular, the fund would have to disclose any “ongoing sales charges” and any “marketing and service fees” in the fund’s prospectus, shareholder reports and investor transaction confirmations. Transaction confirmations also would have to describe the total sales charge rate that an investor will have to pay.  

The proposal would enable funds to sell shares through broker-dealers who determine their own sales compensation. As a result, broker-dealers could establish their own sales charges, tailor them to different levels of shareholder service, and charge shareholders directly, similar to how commissions are charged on securities such as common stock.  

The proposal would prevent funds that rely on this exemption from deducting other sales charges from fund assets for that class of shares. This restriction would prevent double-charging.  

The proposed amendments, which would set automatic limits on fund fees and charges, would eliminate the need for fund directors to explicitly approve and reapprove fund distribution financing plans.  

The fact sheet is here.   

There will be a 90-day public comment period after publication of the proposal in the Federal Register.

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