Retire Rich

September 24, 2007

Independent Chair Rule Appears Dead in the Water

Of the 14 regulations that came out of the mutual fund trading scandal, the two most important were the creation of a chief compliance officer and the requirement that three-quarters of a fund's board of directors, including its chairman, be independent.

Although the Securities and Exchange Commission passed the independent chairman rule twice, a federal appeals court ruled in favor of the U.S. Chamber of Commerce lawsuit against the rule twice.

Since holding a comment period on the rule a third time this past spring, the SEC has been virtually silent about the measure, leading us to conclude that the rule is dead. Not only that, but the SEC hasn't even taken the watered-down step of recommending the appointment of an independent chairman as a best practice or requiring a lead independent director, sort of a second-in-command to the chairman.

The current director of the SEC's division of investment management, Andrew "Buddy" Donohue, will certainly leave behind a paltry legacy as far as shareholders are concerned. During his tenure, he has done virtually nothing to protect investors. Likewise, SEC Chairman Christopher Cox's three biggest contributions so far have been to set the groundwork for more navigable SEC filings via extensible business reporting language (XBRL), to warn seniors against investment fraud and to uncover more misdeeds at hedge funds.

The industry's fierce opposition to the independent chairman rule only underscores its significance. Naturally there are conflicts of interest in having a representative from a fund management company serve as chairman of a fund board responsible for reviewing the company's investment advisory contracts and fees.

Mercer Bullard, founder of Fund Democracy, has argued that if funds were run by impartial boards, they would inevitably negotiate lower fees "and ensure that as much money as possible is being spent to benefit shareholders and not simply to distribute more fund shares or to line the fund manager's pockets through different kinds of kickbacks."

All seven former chairmen of the SEC endorsed the independent chairman rule in a comment letter to the Commission.

Too bad current SEC Chairman Cox can't agree.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com

Recent Posts

Mutual Funds Must Go High-Tech-v. 3.0

Over the last number of years, mutual fund transfer agencies and shareholder communications companies have tried to convince shareholders to accept paperless summary prospectuses, proxies, trade confirmations and electronically stamped signatures. Fund supermarkets and web home pages have broadened their horizons to include market commentary, videostreaming and personal financial news. At the same time, exchange-traded funds, funds-of-funds, hedge FoFs, unified managed accounts, target dates, 401(k) auto enrollment and heightened awareness among people throughout the country of the difficulties of being retired-have taken off.

Test of the Massey Mine

Fund giant boards of directors at AllianceBernstein, American Funds, Fidelity, Vanguard and others are reportedly starting to bring about meaningful change in the corporations in which they are invested. Proof should come any day now, when the shareholder proxy votes from the annual meetings are released. Fund chief executive officers spoke about the power and influence their proxies wield in an interesting Reuters article last week, "Mutual Funds Seek to Shed 'Rubber Stamp' Tag."

Milestones

In 2011, 401(k) plans will turn 30, but the milestones the mutual fund industry has reached in this time are but a nanosecond in the history of U.S. retirement policy. Executives we interviewed for this special edition of Money Management Executive for the Investment Company Institute's meeting in Washington, speak to important milestones of the recent past and into the future. Look inside for observations and forecasts by Ted Benna, Robert L. Reynolds, Dan Fuss, David C. John, Steven Miyao and others.

At Age 30, It's Time for a Revamping for the 401(k)

This year marks the 30th anniversary of the 401(k), the revolutionary retirement savings vehicle that has been annihilating pension plans, empowering individuals to take part in the stock market-and, sadly, that left retirees with the misfortune of leaving the workforce in 2000 or 2008 very badly off. The cracks in the system are prompting many asset managers, regulators and retirement experts to take a hard look at 401(k)s and how they can be fixed.

Index of Posts

0 Comments

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Money Management Executive, please use the form below to login. When completed you will immeditely be directed to post a comment.

Not Registered?

You must be registered to post a comment. Click here to register.