Municipal Bond Forum
Compensation of bond firms
Q
Bond companies seem to be reluctant to reveal the compensation cost they get for handling transactions. Therefore, buyers are unable to compare bond total costs from one broker to another. I would like to get a straightforward answer to the cost the brokers fee adds to the total cost.
A
James A. Klotz responds:
FMSbonds is a tax-free bond dealer, selling from its own inventory. We attempt to make $5.00 to $15.00 per bond depending on many factors such as quality, maturity, etc. But it’s not that simple.
Everyday, our bond prices must be adjusted to the market, which is continually changing. This will alter the anticipated profit or loss for the firm. We would like to point out that most Web sites offering tax-free bonds are actually aggregators who do not sell their own bonds. They make their living by charging an additional fee on top of the dealers’ markup.
Regardless, too many potential investors outsmart themselves when it comes to analyzing a potential bond investment. All you really require is yield information. When comparing comparable offerings, buy the one with the higher yields. If you select the most attractive bond available, why would you care how much profit the dealer makes?
At FMSbonds, all prices are net to the investor. If a brokerage firm adds additional fees or costs they must be disclosed.
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