Some of the underlying managers own affiliated brokerages and may execute trades at commission rates that are not competitive or churn portfolios to generate trading commissions.
For example, some money managers engage in business with affiliated brokerages, including executing of customer trades and purchasing of IPOs underwritten by the affiliate for customer accounts.
The SEC recently took action against one custodian affiliated brokerage for allegedly disadvantaging pensions by not providing best execution on trades, to the benefit of a handful of favored hedge fund accounts.