ST. LOUIS -- The Securities and Exchange Commission is considering enforcement action against Edward D. Jones & Co. over the company's mutual fund sales practices, according to an SEC filing Tuesday by the St. Louis-based brokerage.
An SEC inquiry has called into question whether Edward Jones' revenue-sharing arrangements with investment companies violate National Association of Securities Dealers rules. The inquiry also questions whether receipt of brokerage commissions and sponsorship of award promotions violate other NASD rules, according to a 10-K filing by the firm's parent company, Jones Financial Cos.
Edward Jones spokeswoman Regina DeLuca-Imral said that many financial service firms are being questioned by regulators and government authorities concerning mutual fund sales practices.
"As you would expect, Edward Jones is among the firms receiving inquiries, and we are cooperating fully," DeLuca-Imral said in a faxed statement.
The company learned of the possible SEC enforcement action in January, and other investigations may be pending. The SEC filing said the U.S. Attorney's office in St. Louis, the NASD and the New York Stock Exchange have also issued subpoenas or requests for information to Edward Jones on revenue sharing.
Officials with both the SEC and the U.S. Attorney's office said they do not discuss investigative matters.
The Wall Street Journal reported on its Web site Tuesday that the inquiries involve Edward Jones' practice of receiving large payments from seven "preferred" mutual fund companies the company recommends most highly to customers.
Revenue-sharing fees are legal, but the arrangements must be properly disclosed. A January story in The Wall Street Journal said Edward Jones' clients are often unaware that the firm receives special compensation from the preferred mutual fund companies.
Edward Jones has been named as a defendant in several class-action lawsuits on behalf of purchasers of recommended mutual funds, according to the filing.
The filing said several regulatory and legislative proposals under consideration "could significantly impact the compensation that broker-dealers derive from mutual funds and annuity products." It notes that in the future, brokers will likely be required to provide greater disclosure.
Edward Jones derived 57 percent of its revenue from sales and services related to mutual fund and annuity products in 2003, according to the filing. The revenue-sharing arrangements provided $89.9 million to Edward Jones last year and $85.9 million in 2002.
"Any reduction in the revenues from these products could have a material adverse impact" on the company, the filing said.
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