April 11, 2004
1 Mutual Fund Companies should be required to disclose Fund Manager compensation. The only reason the mutual fund company owners and mutual fund managers object to such disclosure is that THEY KNOW their investors will view the managers compensation as excessive.
2 There should be full and complete disclosure of all fees, loads, costs, expenses, compensation, soft dollars, hard dollars, conflicts of interest and any other facts and circumstances material to any investors informed decision to make an investment in any mutual fund or other security - e.g., CDs, stocks and bonds.
3 Mutual funds should not be allowed to pass any costs of assessments, fines and/or penalties for wrongdoing along to mutual fund investors. Otherwise, such costs are no deterrent to wrongdoing.
4 The SEC should cap mutual fund fees and expenses such funds are allowed to pass along to their investors, i.e., The SEC should establish a maximum for fees and expenses which may be charged to investors. Otherwise such funds have no incentive to keep expenses at a reasonable and prudent level. If the fund owner or manager knows they will always recover such expenses, they need not be prudent in incurring such expenses and such a practice will always be to the detriment of the investor.
5 Mutual funds should not be allowed to pass advertising costs along to investors. Investors do not obtain any benefit from such costs. Only the mutual fund owners e.g., the Johnson family, owners of Fidelity Investments, benefit from such fees charged to mutual fund investors.
6 The SEC should not allow mutual fund companies or corporations to indemnify mutual fund owners or corporate, managers and executives for violations of fiduciary duty. If such personnel are not indemnified, and if they are required to pay their own legal fees for defense of any wrongdoing, I believe they will be less likely to engage in such prohibited conduct. Golden Parachutes should not be allowed by the SEC.
7 The SEC should impose mandatory jail time, significant fines and full restitution of damages for any breach of fiduciary duty. The SEC should also require immediate mandatory termination from the position held at the time of the wrongdoing. If the wrongdoing is questionable, employment should be suspended until resolution occurs and the mutual funds investors should not be charged for any such persons compensation during the period of suspension.
8 The SEC should require mutual fund managers to invest a significant part not a token investment of their own assets in the funds they manage, i.e., the fund managers should be required to eat their own cooking.
9 The SEC should require mutual fund companies to seek SEC approval, or at least SEC recommendation, for all mutual fund fees and all mutual fund managers compensation.
10 The SEC should standardize the method for computing all reported rate of return calculations. The time periods reported should all be the same so that investors can effectively compare reported rates of return. Mutual fund companies should not be allowed to select the best, and ignore the worst periods for reporting historical returns.
11 The SEC should require all mutual fund companies to report all mutual fund fees, costs and expenses - both absolute dollars and percentages - paid by each investor in detail for each fund or investment owned.
12 The SEC should require all mutual funds to report returns after all costs, fees and expenses have been deducted.
13 The SEC should not allow any mutual fund to report, or otherwise advertise, hypothetical returns. Hypothetical returns are misleading and often insufficiently disclosed by mutual funds engaged in such reporting. Only accurate, actual audited returns should reported to investors or prospective investors.
14 The SEC should prohibit mutual funds from engaging in the practice of window dressing, i.e., removing undesireable investments from the fund portfolio at the end of a reporting period that investors might not approve of and then, immediately after the reporting date has passed, reinvesting in any such undesireable investments.
15 The SEC should require all mutual funds to report their investors real rates of return and the investors gain or loss position - market value less cost - on their periodic mutual fund statements. That would allow each investor to fully understand the performance of his or her investment with the fund or broker.
I believe most investors have no idea what their real return on investment is I believe the majority do not even know how to make the calculation. Also, I believe a majority of the investors do not know their gain or loss position. They therefore often do not make changes to their investments that that would make if they knew those positions.
16 The SEC should investigate the manner in which mutual funds value their funds each day and should require all mutual funds to report daily fund values in an appropriate standardized manner.
17 The SEC should punish mutual fund managers who deviate from investment strategies. Some fund companies e.g., Fidelity Investments change their fund managers frequently and each new manager / gunslinger has his or her own ideas about what investments should be included in the fund. Their investors do not know, from one day to the next, how their dollars will be invested. If they did they may choose to move their investments to another fund or vehicle.
18 The SEC should impose significant fees on rapid trades. Trades within 7 to 10 days should not be allowed unless the investor has a significant e.g., medical or other emergency need.
19 The SEC should use LIFO, not FIFO, for purposes of determining which shares were rapidly traded. LIFO would be the best method for preventing rapid trades.
20 The SEC should require all mutual fund companies to report all of their business and investment practices e.g., buying, selling, trading, pricing, accounting for gains losses, charging costs, fees expenses to investors, auditing, methods of compensating managers and owners, etc. for all mutual funds to the SEC, and perhaps to their investors. The SEC should review those practices, determine whether all such practices are in the investors best interests and prohibit any such practices that are detrimental to investors.
21 The SEC should require all mutual fund companies owners, managers and brokers to certify that all their operations are in their investors best interests and that there are no conflicts of interest and no violations of fiduciary duty with respect to their investors intersts.
22 The SEC should:
A Require all mutual funds to justify all costs, fees and expenses charged to investors to the SEC
B Require all mutual funds to report key employee compensation to the SEC and the SEC should investigate any excessive compensation
C Require disclosure, to investors, of all mutual fund managers compensation
D Limit mutual fund manager compensation charged to investors to a reasonable amount
E Develop reasonable mutual fund manager compensation standards and require mutual funds to report excessive compensation to their investors further, investors should be required to approve any excessive compensation before any such costs may be charged to investors
F Mutual funds and brokers have no incentive to curb excessive compensation if they know they will be able to pass such costs on to small investors, even if such excessive compensation adds no value to the small investors portfolio.
Small investors frequently pay excessive compensation to mutual fund managers and brokers even though their returns are mediocre or negative. If the small investor looses, the mutual fund manager or broker should be required to incur a loss for his or her poor performance. Mutual fund managers and brokers have no incentive to manage investments well as long as they are playing with other peoples money.
23 The SEC should require simplification of language and the use of plain english in mutual fund voting proxies. Mutual fund management should not be allowed to recommend a vote on any issue for or against, i.e., the investor should not be persuaded by management to vote in a manner desired by management.
24 The SEC should consider all mutual fund practices opposed to investors interests e.g., mutual fund and brokerage companies are interested only in:
A Passing all or maximum costs mutual fund investors
B Maximizing profits to mutual fund owners and brokers
C Minimizing investor information on costs, actual rates of return, gain or loss position, etc.
D Overstating the real rates of returns, and understating the costs to investors, on mutual funds and other investments offered
E Confusing and disguising their operations and the costs their investors must bear
F Complicating their voting process so much that investors must rely too heavily on managements recommendations in casting their votes.
25 The SEC should solicit comments from, and listen attentively to, knowledgable investor friendly personnel, e.g., Mr. John C. Bogel, former Chairman and CEO of the Vanguard Group.
26 The SEC should consider whether mutual funds should be owned by mutual fund owners. Would arrangnements, such as The Vanguard Group, be more in the investors best interest?
27 The SEC should rank the mutual funds and brokers performance by best business and investment practices, reasonable costs and compensations, etc. best to worst, and require mutual funds and brokers to report the SECs ranking of their fund to investors.
28 The SEC should require that all mutual fund directors be independent and investor oriented. Directors interests should not be aligned with the owners of mutual fund and brokerage companies.
29 The SEC should consider prohibiting mutual fund companies and brokers from doing their own advertising. Not advertising is a common practice among the most reliable professionals, e.g., Doctors, Attorneys and CPAs. Investors should be able to look to an independent organization, such as Morningstar, for reliable audited information on potential investments and should be allowed to make their selections based upon unbiased information.
30 The SEC must be willing to act to protect small investors interests. We have no other voice, or forum or protection.
The SEC cannot serve two masters i.e., the SEC cannot rubber stamp recommendations made by the mutual fund and brokerage industry and protect the small investor at the same time. The SEC must be willing to make tough decisions they know will be unpopular with the mutual fund and brokerage industry if the SEC fully intends to discharge their duties to small investors. We, the small investors, are investing our life savings, the savings with which we will fund our retirement, with mutual fund companies and brokers and we are deserving of the SECs protection.
In the base case mutual fund owners and brokers interests are in direct conflict with best interests of mutual fund investors. The SEC should seriously consider that fact as they proceed to improve the practices, disclosures, reporting and governance of and by the mutual fund and brokerage industry. As long as any person owns a mutual fund company, small investors interests will always come out second best. Mutual fund and brokerage owners will always act to improve their own financial condition, most often to the detriment of small investors.
The violations of trust and confidence, and the breaches of fiduciary duty, by many mutual fund companies have been reprehensible, significant and motivated solely by greed and self interest - to the significant detriment of mutual fund investors. Many mutual fund companies have betrayed their investors by allowing rapid trading in violation of their own rules and regulations. They agreed to look the other way when it was financially beneficial for them to do so - and damn the interests of the small investor. They have stolen millions of dollars from those who trusted them with their hard-earned savings and who relied upon them to manage their savings honestly. They continue to over charge mutual fund investors for costs and fees which mutual fund investors should not reasonably have to bear.
The mutual fund industry has clearly and emphatically demonstrated that they cannot be relied upon to police or regulate themselves. They have proven themselves to be unworthy of the trust of their investors. Thousands of mutual fund investors have been robbed by some mutual fund companies just as surely as if they had done so at gunpoint. Their crimes should be dealt with accordingly. The actions of several mutual fund companies have been corrupt and have so tainted the remainder of the industry that many investors have completely lost faith in them.
We do not now know which mutual fund company or broker to trust. Even though the SEC has not charged some mutual fund companies with wrongdoing, how can we as small investors know whether such a company has not engaged in wrongdoing? We cannot know. Maybe their wrongdoing simply has not been disclosed to, or by, the SEC. All we have is the mutual fund owners and managers word that they have not engaged in any wrongdoing and the SEC knows, as surely as all investors know, that the guilty always loudly proclaim their innocence until their guilt has been proven beyond doubt. The SEC can no longer allow the fox to guard the hen house.
The SEC should not, and cannot, allow the mutual fund and brokerage industry to run roughshod over the small investor. The SEC must tailor their regulations of the mutual fund and brokerage industry toward protection of the small investor.
Thank you for your patience and the opportunity to provide my comments. It is my hope that the SEC, and other regulatory bodies governing the mutual fund and brokerage industry, WILL HEAR AND LISTEN ATTENTIVELY TO voices like mine.