Spitzer, others fault mutual fund moves.

• Author: Marshall, Jeffrey
• Position: Mutual Funds

Over the past few decades, the mutual fund industry has changed enormously, and not for the better, argued a panel of expert observers in a recent forum. A common observation: marketing has overwhelmed fiduciary stewardship, and the biggest fund families are the ones most guilty of pushing the marketing envelope.

With those changes have come an apparent laxity on the part of fund management company boards, which rarely exert any authority, said Michael F. Price, the noted fund manager who is now Managing Director of MFP Investors LLC. "Management contracts don't get canceled," he told the audience at "Funds Under Fire," a January forum sponsored by Kroll Inc. in New York City.

New York State Attorney General Eliot Spitzer, the featured speaker at the event, argued that unlike the investment banking scandals of the last few years, the rules governing mutual funds are well known and should have been enforced. Calling the recently discovered violations "grotesque," he noted that he and other regulators haven't hesitated to use harsh sanctions, including jail terms, for fund miscreants.

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While the "democratization of the marketplace is unambiguously a good thing," Spitzer said, referring to the massive long-term movement into mutual funds by ordinary investors, the small investor hasn't been well served. Better service and better protections are clearly needed, he said.

Price argued that investors of all stripes need more disclosure and accountability from fund families about their processes, and he chided the industry for using its fee collections not to improve its investing...