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What Conflict of Interest Has Cost Investors

New Morningstar research examines the impact of high-rebate arrangements on investor returns and the positive impact the proposed fiduciary rule has had.

In early February, 11 former SEC chief economists wrote a letter arguing that the SEC produced a deficient economic analysis of its recently proposed "Regulation Best Interest." Principal among the complaints, the former SEC staffers argued that the commission failed to quantify the costs of conflicts of interest to ordinary investors, and therefore the extent to which the proposed rule could ameliorate these conflicts.

Morningstar has conducted such research. It does not address all the ways in which conflicts of interests can cost investors, but it does evaluate the effects of one type of conflict. In such a situation, the Morningstar policy team found, investors paid a clear price for a conflict of interest that brokers face. The paper "Conflicts of Interest in Mutual Fund Sales: What Do the Data Tell Us?" was recently published in The Journal of Retirement.