What Do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives





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    • Christoffersen is from the Rotman School of Management at the University of Toronto and the Copenhagen Business School. Evans is from the Darden School of Business at the University of Virginia. Musto is from the Wharton School at the University of Pennsylvania. Christoffersen gratefully acknowledges financial support from SSHRC, IFM2, and the Canadian Securities Institute Research Foundation. The authors also wish to thank the Q-group for their financial support of this project and the ICI, especially Shelly Antoniewicz, for their assistance with data. We are deeply grateful for comments from the Editor, Associate Editor, and two anonymous referees. In addition, several individuals provided helpful input including Dan Bergstresser, John Chalmers, Peter Christoffersen, Paul Irvine, Marcin Kacperczyk, Randi Naes, Tim Simin, Lu Zheng, and seminar participants at Indiana University, INSEAD, Penn State University, SUNY Buffalo, University of Colorado at Boulder, University of Toronto, University of Utah, University of Vienna, Boston College, 2005 Mitsui Life Conference at the University of Michigan, 2005 Q-Group Meetings in Carlsbad, 2005 Northern Finance Association Meetings, 2006 American Finance Association Meetings, 2006 Financial Management Association Meetings, 2008 European Winter Finance Conference, and Cass Business School Conference 2009. The paper was previously titled “The Economics of Mutual Fund Brokerage: Evidence from the Cross-Section of Investment Channels.” Extensive research assistance was needed in matching databases from Eric Turner, Jerome Grenier, John Bromley, and Thibault Webanck. Any remaining errors are our responsibility. Part of this paper was written while Christoffersen was at McGill University and visiting Copenhagen Business School.


We ask whether mutual funds’ flows reflect the incentives of the brokers intermediating them. The incentives we address are those revealed in statutory filings: the brokers’ shares of sales loads and other revenue, and their affiliation with the fund family. We find significant effects of these payments to brokers on funds’ inflows, particularly when the brokers are not affiliated. Tracking these investments forward, we find load sharing, but not revenue sharing, to predict poor performance, consistent with the different incentives these payments impart. We identify one benefit of captive brokerage, which is the recapture of redemptions elsewhere in the family.