HELP ME HELP YOU: A STUDY OF BROKER BENEFITS

ABSTRACT Many investors purchase mutual funds through intermediated channels, paying brokers a substantial fee for fund access, selection and insights. We study broker sold funds from 1999 to 2002 using the unique N-SAR database, and find that brokers deliver tangible and intangible benefits to both fund sponsors and investors simultaneously. We find that broker compensation is positively related to specific broker benefits, suggesting that sales in the broker distributed mutual funds might reflect the brokers’ ability to provide services to the fund company and not necessarily the customers. This paper reveals that the brokers’ other forms of compensation, such as research information and portfolio valuation, are utilized to serve the needs of their clients. Our results are consistent with two hypotheses: that brokers deliver substantial intangible benefits to investors and that these benefits positively affect fund sponsors by increasing fund inflows. Keywords Mutual Funds, Brokers, Compensation, Fees, Loads