The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:Rating Agency Foresees Profits Pressure for Fund Advisors Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, December 08, 2003

Rating Agency Foresees Profits Pressure for Fund Advisors

by: Sean Hanna, Editor in Chief

Investment advisors to the mutual fund industry may be in for a period of slimmer profits because of the fund skimming scandals. The conclusion was drawn by a quartet of FitchRatings' analysts covering the banking industry in a white paper published on December 3. The white paper is titled Under the Microscope: Increased Scrutiny of Fund Managers. The papers authors are Eileen Fahey, Leslie Bright, David Spring and Lamindy Brandon-Joseph. The industry may face a period of increased consolidation because of the scandals, the analysts wrote in the paper. However, they believe that the fund industry will ultimately emerge from the scandals and regulatory fallout in tact. They do predict that fund advisors will be forced to improve systems and controls so that "known misdeeds occur less frequently." The authors point out that the fund industry has been "long immune to normal pricing pressures" as investors typically judge funds by performance rather than expenses. That means that higher cost funds have prospered equally with lower cost funds. That may change, though, if regulators force boards to more closely watch fund expenses and advisory agreements. If fees do come under closer scrutiny, larger funds may benefit as they can operate with lower expenses. Fund advisors must also face a number of underlying management issues raised by the scandals, according to the paper. These include:
  • existing weak oversight by mutual fund directors.
  • a breakdown of operational risk systems at the advisor.
  • a incentive system that leads mid-level managers to value asset gathering over the long-term reputation of the fund firm.
  • the failure of firms to maintain a fiduciary culture that puts the shareholder's interest at the fore. Not all of the conclusions are gloomy, though. The authors do believe that funds will have a significant role to play with investors in the future. "Investors are unlikely to flee mutual funds, because alternative investment classes do not have the advantages of diversification and low, direct transaction costs," the authors wrote. To the extent that investors do turn elsewhere other industry products such as exchange-traded funds and closed-end mutual funds are the likely beneficiaries.  

    Stay ahead of the news ... Sign up for our email alerts now

  • 0.0
     Do You Recommend This Story?

    GO TO: MFWire
    Return to Top
     News Archives
    2021: Q4Q3Q2Q1
    2020: Q4Q3Q2Q1
    2019: Q4Q3Q2Q1
    2018: Q4Q3Q2Q1
    2017: Q4Q3Q2Q1
    2016: Q4Q3Q2Q1
    2015: Q4Q3Q2Q1
    2014: Q4Q3Q2Q1
    2013: Q4Q3Q2Q1
    2012: Q4Q3Q2Q1
    2011: Q4Q3Q2Q1
    2010: Q4Q3Q2Q1
    2009: Q4Q3Q2Q1
    2008: Q4Q3Q2Q1
    2007: Q4Q3Q2Q1
    2006: Q4Q3Q2Q1
    2005: Q4Q3Q2Q1
    2004: Q4Q3Q2Q1
    2003: Q4Q3Q2Q1
    2002: Q4Q3Q2Q1
     Subscribe via RSS:
    Raw XML
    Add to My Yahoo!
    follow us in feedly

    ©All rights reserved to InvestmentWires, Inc. 1997-2021
    14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
    Privacy Policy :: Terms of Use