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During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had triggered a more in‐depth investigation into mutual fund marketing and compensation practice by securities regulators, Congress, and the states. This article focuses on the regulation of sales compensation practices primarily as it affects a broker‐dealer selling mutual funds in the retail market. It addresses the regulatory framework for three key compensation practices: (1) the use of non‐cash compensation in connection with mutual fund sales; (2) marketing and compensation arrangements providing enhanced compensation to a selling firm as well as to its sales representatives for the promotion of certain fund securities over others, such as proprietary funds over non‐proprietary funds, preferred funds over non‐preferred funds, and Class B shares over Class A shares; and (3) the use of commissions for mutual fund portfolio trades as an additional source of selling compensation for selling firms, a practice sometimes referred to as ”directed brokerage.“

This paper aims to explain the U.S. Securities and Exchange Commission’s (SEC’s) recent Share Class Selection Disclosure (SCSD) Initiative, which offers potentially favorable settlement terms to investment advisers who self-report to the SEC’s Enforcement Division violations of the federal securities laws relating to certain mutual fund share class selection issues and to discuss factors for consideration by investment advisers regarding their possible participation in this initiative.

This paper discusses the conditions and terms of the SEC’s SCSD Initiative, the SEC’s focus on conflicts of interest associated with mutual fund share class selection, the applicable law, the complex nature of these issues and the factors that investment advisers should consider in determining whether to participate in the initiative.

The assessment of the facts and the evaluation and analysis of the issues may be both time-consuming and complex. Firms need to carefully consider whether the potential benefits of self-reporting outweigh any possible downsides, including the potential collateral consequences that an SEC enforcement action may have on their business operations.

This paper contains valuable information about a recent SEC Enforcement Initiative and provides practical guidance from experienced securities counsel.

To explain the SEC’s Share Class Selection Disclosure Initiative (SCSD Initiative), the purpose it seeks to serve, the results it has generated, and its broader implications for the asset management industry.

Explains the newly announced results of the SEC’s Share Class Selection Disclosure Initiative. Provides background on the principles underlying the initiative, the mechanics by which the initiative’s self-reporting program operated, and industry reaction to the initiative. Analyzes the results the initiative generated, in terms of both aggregate disgorgement and the terms of settlement offered to self-reporting advisers. Draws conclusions and provides key takeaways.

Although the terms of the actual settlements were consistent with the framework of standardized settlement terms set forth in the SCSD Initiative, whether the standardized terms of settlement offered under the SCSD Initiative ultimately will be viewed as favorable will depend in large part upon how the SEC continues to treat advisers that did not self-report.

Expert analysis from experienced lawyers in the mutual fund and investment advisory industries.

This book is a policy proposal aimed at the democratic left. It is concerned with gradual but radical reform of the socio‐economic system. An integrated policy of industrial and economic democracy, which centres around the establishment of a new sector of employee‐controlled enterprises, is presented. The proposal would retain the mix‐ed economy, but transform it into a much better “mixture”, with increased employee‐power in all sectors. While there is much of enduring value in our liberal western way of life, gross inequalities of wealth and power persist in our society.

The purpose of this paper is to examine how board compensation and holdings are related to mutual fund expense ratios. Previous studies find that compensation and expense ratios are positively correlated and argue that this relationship is potential evidence of rent sharing, whereby excessively compensated boards fail to negotiate with fund managers for lower shareholder fees.

Using a dataset of US open‐end mutual funds, the author examines how geographic‐based salary data, director profession, director fund holdings and fund returns might explain the relationship between compensation and fees.

The results provide additional support for potential rent sharing between fund managers and directors and are robust to alternative measures of director compensation, fund sales loads, director holdings and fund returns.

The findings are limited by the sample size and the lack of time series data of the hand‐collected dataset. Data are collected from 598 funds in the year 2003.

These findings suggest that mutual fund expense ratios may be affected by potential agency costs.

Mutual fund regulatory focus has been predominantly focused on the independence of board chairmen, but this study shows that compensation may also be a significant contributor to fund governance.

This study is unique in its recent focus on fund expense ratios and board compensation and examining potential explanations for this relationship.

The Canadian mutual fund setting is unique in that two governance mechanisms – corporate and trust – coexist. This study empirically examines the impact of each mechanism on fund fees and performance. We find that corporate class funds charge higher fees but deliver superior fee-adjusted returns than trust funds. We then analyze the impact of various board characteristics on fees and performance for corporate class funds. We find that a board with smaller size, CEO duality, and a higher percentage of independent directors is more likely to charge lower fees. In addition, smaller boards are strongly associated with higher fee-adjusted performance. Our study supports agency theory over stewardship theory and provides valuable guidelines for Canadian investors and regulatory agencies.

Drawing on “Strategic Alliance” literature and qualitative research methods, the purpose of this study is to examine the initiation and operations phases of the relationship between Australian litigation funders and class law firms. The initiation phase examines factors such as complementarity between needs and assets compatibility between the funder and the class law firm goals of the alliance trust and alliance structure. The operations phase considers factors such as governance, communication and risk management and accountability. Because of its focus on the fairness of settlement, case law provides limited understanding of the drivers of the class law firm and funder relationship. An “inside look” of how the funder-law firm is initiated and made operational provides a more accurate picture and has important implications for the management of the ethical issues that arise during the course of that relationship.

This paper is a content analysis and contains qualitative interviews.

The strategic alliance between class law firms and litigation funders has evolved within an institutional climate that has acknowledged the benefits that the alliance can bring to the conduct of class actions. That same institutional environment has led to an alliance which is informal and transactionally oriented, where each of the parties maintains a demarcation in function. Although they share aspects of the strategic management of class actions, funders continue to be diligent monitors of class law firms, and class law firms continue to advance the legal rights of class members.

It is observed that the size of the sample is small driven by a number of market participants.

The paper confirms that the litigation funder–law firm strategic alliance works well as a result of institutional constraints.

Each of the alliance partners was keen to ensure that neither they nor their partner acted in a way which might attract judicial disapproval. Each also believed that they played a positive role in promoting class member interests, albeit that their primary motivation was to earn fees or a commission. The success of the alliance between class law firms and litigation funders has substantially improved access to justice in Australia for small claims holders.

The paper provides insight into a strategic alliance which is formed primarily for the benefit of third parties. This is one of the first papers to consider the litigation funder–law firm relationship through the lens of strategic alliance literature.

To describe the broad range of reform initiatives that has been undertaken in response to a series of mutual fund scandals that have become apparent starting in 2003. This is the second of a two‐part article. The first part, in Volume 7, Number 1, is a chronology of developments related to the fund scandals since 1 January 2003.

Describes SEC reforms, including governance reforms; compliance reforms; SEC‐directed expanded disclosure regarding fund expenses and costs; reforms with respect to share distribution practices; reforms addressing market timing, selective disclosure, and fair value pricing; other reform initiatives including codes of ethics for investment advisers and a requirement that hedge fund advisers register with the SEC; an enhanced surveillance and inspection program for mutual funds; and enforcement activities. Describes private civil suits brought against fund companies, legislative proposals, the roles of NASD and New York State Attorney General Eliot Spitzer, the development of “best practices” guides by industry groups, and measures being promoted by institutional investors.

A broad range of reform initiatives has been undertaken by the SEC; NASD; and the New York, Massachusetts, and California Attorneys General. Both the US House of Representatives and the Senate have held hearings and proposed legislation, which at the moment appears dormant. Independent directors of only one mutual fund have been implicated in the trading abuse scandals. Hundreds of private civil lawsuits have been brought by fund shareholders against fund groups but virtually none has resulted in substantial restitution to plaintiffs.

A detailed and comprehensive analysis of reform initiatives in response to mutual fund scandals since 2003.