Tags: Twice | commission | munis | corporates

WSJ: High Commissions Jack Up Cost of Munis

By    |   Wednesday, 12 Mar 2014 08:20 PM

Individual investors who buy municipal bonds pay twice as big a commission as those buying corporate bonds, according to a study performed by S&P Dow Jones Indices for The Wall Street Journal.

Individual investors trading $100,000 in muni bonds paid brokers an average commission of 1.73 percent, or $1,730 in December, according to the study. Meanwhile, the commission was 0.87 percent, or $870, for a comparable corporate bond.

In stock and corporate bond transactions, brokers must disclose market pricing and give individuals "best execution" on trades, so they pay the lowest price possible. But investors don't receive those protections in the muni bond market, The Journal reports.

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Individual investors account for 73 percent of the $3.7 trillion of the muni bond market.

Regulation of the muni bond market has been slow to develop, The Journal reports.

"I think we can do more here for retail investors," Michael Piwowar, a commissioner on the Securities and Exchange Commission, told the paper.

"We spend an awful lot of time on the equities side of the market where spreads are counted in pennies—and in the 'muni' market, spreads are counted in dollars."

As for which munis to invest in, Morningstar recommends "a more measured approach by sticking to intermediate-term munis with average credit qualities of AA, which usually means that the fund has a big enough stake in high-quality bonds to cushion against credit risk but is also parked in some lower-rated issues to exploit their higher yields," the firm says on Morningstar.com.

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Individual investors who buy municipal bonds pay twice as big a commission as those buying corporate bonds, according to a study performed by S P Dow Jones Indices for The Wall Street Journal.
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2014-20-12
Wednesday, 12 Mar 2014 08:20 PM
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