February 28, 2011

Mutual Fund Wholesalers

Most people do not know about a very uncomfortable relationship, one that crys out for conflict of interest.  It is the relationship between your stockbroker / financial advisor and mutual fund wholesalers.

Mutual fund wholesalers make money by promoting the fund family that he/she represents to stockbrokers / financial advisors.  The more dollars that flow into that fund in a certain territory, just like any other salesman, the more money they make (and thats fine if you are selling widgets but not financial products).

Wholesalers will often offer incentives to stockbrokers / financial advisors in the form of higher commissions, sponsored events, etc, to have that stockbroker sell a particular fund to their clients.

Worst of all, wholesalers usually report a bump in sales at the end of every sales period or commission month proving conclusively that stockbrokers / financial advisors are not necessarily looking out for your best interest. 

Many stockbrokers I worked with would hold on to cash to wait and see which wholesaler / fund family was offering them the best incentives that particular commission month and then park client money there. 

It is a very unsavory relationship yet it continues to thrive.

The best way to know that all investments are made in your own best interest is to invest by yourself and for yourself.


  1. I would be more worried about the same type of relationship between your medical doctor and the drugs' company reps...

  2. Advisors have a choice and I can assure you it doesn't come down to taking someone out to dinner or some type of incentive, it comes down to what investment option best suits my client. It is the wholesalers job to educate the advisor but he/she is not giving false information, they are merely explaining the benefits of their products.

  3. Advisors do have a choice, that's true. The conflict of interest is the problem, education, I doubt it, you don't need some wholesaler to explain his funds, look at the prospectus or online for all the details. What wholesalers provide is information that is not available elsewhere which is that for this week, the commission is 4%, not 3% or we'll give you a set of golf clubs for the salesman who sells the most of our funds this month.