Mutual Fund Negative General Effects on Shareholder Performance

Abstract

This study examines the nature of the influences that can and often do have indirect negative impacts on mutual fund shareholders. The first influence is fund market monopolistic competition, which lessens competition on the basis of prices charged shareholders. The second influence is fund advisers who manage fund management companies as well as, indirectly, the fund, to the extent independent directors are lacking by law and/or practice. The third influence is independent directors who are inadequately empowered by law as “shareholder watchdogs” and also legal “outsourcing” of regulatory oversight to directors that has not provided essential protections from fund advisers to shareholders. The fourth influence is Supreme Court cases involving shareholder charges of excessive fund fees, which have always been settled for fund advisers. The fifth influence is shareholder financial literacy, where low literacy has numerous potential negative implications for shareholder investing. The final, and perhaps most important influence, is that fund investors face an industry created and maintained as opaque and damaging to their best interests.

TOPICS: Mutual fund performance, legal/regulatory/public policy