Fund Director's Guidebook.

• Author: Phillips, Don

Too many fund investors see themselves as consumers of mutual fund products rather than as owners of an investment company. That's understandable - most of us are far more familiar with the role of consumer than that of investment owner - but it's also unfortunate.

In the long run, the fund industry is better safeguarded if it views shareholders as owners rather than customers. The industry's founders understood the importance of this distinction. That's why they formed investment companies, rather than managed investment products. That's also why they crafted regulation that stressed the vital importance of fund directors, particularly independent ones. Unfortunately, as the fund industry has moved increasingly toward treating investors like customers, the role of the director has become less clear to the public, and likely to many directors themselves. It is of significant importance to the fund industry's long-term viability that this trend be reversed.

A good starting point would be to make the American Bar Association's "Fund Director's Guidebook" required reading for every mutual fund director. The book serves as a useful primer on the role and responsibilities of the director, covering the main tenets of the Investment Company Act of 1940 and other relevant legislation. The book effectively translates the sometimes arcane legal language of the various statutes into text that even directors from professions other than law will understand.

I particularly like the layout of the book. While its concluding sections focus on the issue of greatest concern to directors - their potential liability as fiduciaries - the book, quite properly, begins with and continues to stress throughout...