Edward Jones under scrutiny

By John Waggoner
USA Today

The Securities and Exchange Commission is questioning brokerage Edward Jones about its mutual fund sales practices.

The St. Louis brokerage disclosed in its annual report, filed yesterday, that the SEC had asked about funds that pay to be on Jones' preferred list, which its brokers promote heavily to customers. Investors often assume the funds are being pushed because they're top performers, not because brokers are getting paid extra.

The payments to Edward Jones totaled $90 million in 2003, according to the filing, first reported by the Wall Street Journal Online. Such arrangements, called revenue-sharing agreements, are legal, but only if the brokerage tells clients that funds pay to be on the list.

The SEC would not comment on the inquiry.

"Many financial services firms are currently being questioned by various regulators and governmental authorities about mutual fund sales practices," Edward Jones said in a statement. "As you would expect, Edward Jones is among the firms receiving inquiries, and we are cooperating fully."

The filing also said several class-action lawsuits against the company had been filed by clients who bought from its preferred list.

It is the latest in a string of revenue-sharing actions by the SEC. In November, Morgan Stanley agreed to pay $50 million to settle charges it had received millions of dollars to steer customers to select funds without disclosing the compensation.

More actions could be in the works. An SEC survey released in January found 13 of 15 brokerages favored funds with which they had revenue-sharing arrangements. The payments range from 0.05 percent of sales to 0.4 percent of sales, and from zero to 0.25 percent of assets held for a year or more, the SEC said.

For example, a brokerage that produced $100,000 in fund sales would get $50 to $400 annually. For every $100,000 that remained invested in the fund, the brokerage would get as much as to $250 annually.