Should Commissions on Mutual Funds Be Illegal?

From the Wall Street Journal: The Intelligent Investor: Going Dutch — Could Fee Hurdles Come Down Everywhere?

New rules in the U.K., the Netherlands and Australia show one drastic way to tackle [confusing investing advice]. Starting this coming week, commissions on popular investments like mutual funds will be banned in Australia. Later this year, the Dutch government will finalize a law that will ban commissions as of Jan. 1, 2014. A similar prohibition already went into force in Britain as of Dec. 31, 2012.

These changes provide a glimpse of one possible future for U.S. investors: a market in which “what the adviser gets paid is no longer linked to which product the adviser sells to the client,” as Mark Wiedman, global head of iShares, the largest manager of exchange-traded funds, puts it.

Consider the Netherlands, the birthplace of the very idea of “individual investors,” with a 400-year history of middle-class citizens committing their capital to the financial markets.Today, most Dutch investors get their financial advice from a handful of big banks.

In Holland, as in the U.K. and Australia, investors have long paid for advice through a form of commission known as a “retrocession”—a payment routed to the adviser by the manager of a fund that the adviser sells to a client. All three countries are generally banning these payments, requiring advisers instead to charge fees, disclosed upfront, directly to their customers.