Title

United States Mutual Fund Investors, Their Managers and Distributors

Author granted license

Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International

Document Type

Book Chapter

Publication Date

2007

Editor(s)

Luc Thévenoz and Rashid Bahar

ISBN

90-411-2578-7

Publisher

Kluwer Law International

Language

en-US

Abstract

The concept of conflicts of interest is rich, varied and complicated. Mutual funds provide a prime example of conflicts of interest issues and will be the focus of this paper. The parties are public investors in mutual funds, managers of mutual funds and distributors that sell mutual fund shares and trade in the funds’ portfolios. The issues are difficult because each party can justify its claims, and public policy supports each claimant. Thus, everyone can be right, but the results of the claims of at least two parties can be completely wrong. The ultimate victims of conflicts of interest in this case are mostly the shareholders of mutual funds and the financial system as a whole. And even though the problems are not new and many solutions have been tried, none of the solutions has lasted.

This paper is divided into five sections. Section 1 deals with the nature of conflicts of interest – what they mean and when they matter. Section 2 provides an overview of mutual funds and their promoters. Section 3 discusses how mutual fund managers’ relationships with distributors pose serious conflicts of interest in their relationships with investors. Section 4 examines the models and theories on which the parties base their claims. The final section, Section 5, discusses possible ways of addressing conflicts of interests between mutual funds managers and distributors and the interests of the investing shareholders. The conclusion suggests that, without an appropriate strong culture of honesty, none of the solutions will work over time.

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