Restoring Trust in Mutual Funds
It's time for the wholesale reform of the nation's mutual-fund industry. New York State Attorney General Eliot Spitzer has revealed that big fund companies gave special breaks to a hedge-fund manager that were not available to average investors and that may, in fact, have been detrimental to their interests. Canary Capital Partners settled with Spitzer by paying $30 million in restitution and, in addition, a $10 million fine -- without admitting guilt (try explaining that to your children). This is by no means the first time that small investors have gotten the short end of the stick from mutual funds. They've been suffering for years, and it's got to stop.
Excessive costs, high fees, and high compensation paid to mutual-fund managers regardless of performance have been seriously eroding investor returns for far too long. Investors even have to pay fees for funds' marketing and advertising costs under the infamous 12(b)-1 rule. This is simply absurd.
What is needed above all is for the Securities & Exchange Commission and the funds' own trustees to step up to their responsibilities. Putting a stop to activity that is against the law is just one step. Public and private overseers need to insist that mutual funds must publish quarterly statements that clearly show how much investors are paying in the form of fees on their accounts. Investors need to know how much the mutual-fund managers are actually compensated. And they need the SEC to withdraw its 12(b)-1 rule, which it imposed on investors in 1980 to help bolster the mutual-fund industry. Mutual-fund reform must take its place beside corporate reform if America is ever to restore popular trust in investing again. With the economy reaching lift-off and the stock market moving higher once again, there is no time to waste.