Should fund fees be dictated by market forces instead of negotiations involving fund boards? That should be the case, if you ask the past four directors of the Securities and Exchange Commission's division of investment management.
The proposal, which has been around since the 1970s, recently received backing from the former SEC officials, according to
Relieving fund directors of their responsibility to negotiate fees will enable them spend more time performing other aspects of their jobs as guardians of fund shareholders, according to supporters of the idea.
Former SEC officials backing the idea include Kathryn McGrath
, now a partner in the Washington office of law firm Mayer Brown Rowe & Maw; Paul Roye
, senior vice president in the Washington office of Capital Research and Management Co.; Barry Barbash
, a partner in the Washington office of law firm Willkie Farr and Gallagher LLP, and Marianne Smythe
, a partner at law firm Wilmer Cutler Pickering Hale and Dorr LLP.
Aside from allowing fees to be determined by market forces, the idea would likewise allow fund firms to report a unified fee to investors.
"There is some consensus that a single-fee proposal would have all the advantages. It's easy for investors to understand: 'This is the price you pay,'" McGrath, who served as director of the commissionís investment management division from 1983 to 1993, told InvestmentNews
But not everyone is a fan of the idea. The proposal, according to David Ruder
, chairman of the Mutual Fund Directors of Washington, is a "very unfortunate suggestion because the investment adviser already has incentives to try to keep fees high."
Minus the oversight of an independent board, advisory firms "would have even more desire to have high fees," Ruder argued.
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