Mutual fund advisory fees: The cost of conflicts of interest

Despite its phenomenal marketing success, the mutual fund industry now finds aspects of its conduct under attack from various quarters. This article examines whether the chief product that shareholders buy when they invest in mutual funds - professional investment advice - is being systematically ov...

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Bibliographic Details
Published inThe Journal of corporation law Vol. 26; no. 3; p. 609
Main Authors Freeman, John P, Brown, Stewart L
Format Journal Article
LanguageEnglish
Published Iowa City University of Iowa, College of Law 01.04.2001
Subjects
Boards of directors
Competition
Conflicts of interest
Costs
Economies of scale
Federal court decisions
Fees & charges
Investment advisors
Investment policy
Marketing
Mutual funds
Profits
Proposals
Scandals
Securities regulations
Statistical analysis
Stockholders
Studies
United States > US
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Summary:Despite its phenomenal marketing success, the mutual fund industry now finds aspects of its conduct under attack from various quarters. This article examines whether the chief product that shareholders buy when they invest in mutual funds - professional investment advice - is being systematically overpriced by fund managers. The emphasis is on advisory fees imposed on equity mutual funds. How the industry's unique management structure accounts for the alleged lack of price competition in the delivery of management advice perceived by the industry's detractors is discussed. Questions relating to economies of scale in the fund industry are presented. Causes for the status quo are studied, including the industry's statutory scheme, the quality of the SEC's regulatory efforts, and the reception given fund critics by the courts. The article concludes with a set of proposals for changing the present competitive environment in which fund advisory fees are set, disclosed, and evaluated.
ISSN:0360-795X