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Fund companies realize that brokers can be a lucrative market for their product. Not only do they provide that contact, but they also have found that brokers do better at convincing consumers that funds with loads, front end or back end charges, are better for their portfolios. This additional selling point hasn't gone unnoticed. Now fund companies are doing even more to get those financial analysts to sell you even more.
The NASD (the National Association of Securities Dealers) requires brokers to tailor mutual fund to your specific needs. But the advent of reallowances by some major fund families skews that "best interest" requirement. A reallowance works like this: A fund is sold by the broker who gets a commission and a portion of the "load" that is charged by the fund. The mutual fund company usually takes between a 0.25% and 0.50% of the money invested. Reallowances return that money to the brokerage.
This influence from certain fund companies may alter the types of products that are offered. IRAs, which firms consider "sticky money", are particularly susceptible to this kind of sale. The money stays at the brokerage until retirement, and in light of the current market, keeping money from being redeemed, is profitable for all involved. Sometimes even the investor.
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