Some industry critics suggest that the interests
of fund managers and fund investors are not always aligned. For
instance, practices such as
market timing
may benefit fund management, since they may increase fund assets
— and management fees — while at the same time
increasing shareholder expenses. That's why regulators have
proposed and adopted a number of changes to the way mutual
funds are managed and overseen to better safeguard shareholder
interests.
Chief compliance officer
As of late 2004, all mutual fund companies must have compliance
programs in place to implement policies and procedures to prevent
violations of securities laws and to take prompt action when issues
occur. Each fund board must also appoint a chief compliance
officer (CCO) to administer its compliance program and advise
the board and fund management regarding compliance issues,
such as conflicts of interest, soft dollars, disclosure, and fund
governance issues.
Independent directors
One controversial rule requires mutual funds to increase the number
of independent directors on their boards from the current minimum
of 40% to 75% and appoint an independent board chairman.
Regulators argue that independent directors, who do not have ties
to fund management, are in a better position to oversee fund
management and hold it accountable.
The rule is currently being challenged in court by the U.S. Chamber
of Commerce. Critics say that the costs of the new rules far
outweigh the benefits, since there is no evidence that funds with
independent directors do a better job of safeguarding investor
interests. In fact, they point out, some of the funds investigated
for compliance violations had independent chairmen.
