Mutual Fund Advisory Fees:

The Cost of Conflicts of Interest

John P. Freeman* & Stewart L. Brown**
The Journal of Corporation Law, University of Iowa | Spring, 2001

* Campbell Professor of Legal and Business Ethics, University of South Carolina. B.B.A., 1967; J.D., 1970, University of Notre Dame; LL.M. 1976, University of Pennsylvania. Member, Ohio and South Carolina Bars.
** Professor of Finance, Florida State University. B.S.B.A., 1970; M.B.A. 1971; Ph.D. 1974, University of Florida; CFA.

Text: 28,783 words

SUMMARY:
… In the early 1970s, America’s mutual fund industry was suffering net redemptions, meaning it was contracting in size. … Wildly different fee structures apply to equity portfolio investment advisory services purchased by public pension funds on the free market compared to the same form of services purchased by investor-owned mutual funds. … ” Other evidence that advisory fee structures are unusually lucrative in the fund industry in comparison with pension advisory business comes in the form of reports that fund advisor buy-outs are more costly than acquisitions of firms that advise pensions. … Regressions of the following form were run on both the pension and mutual fund data: Advisory Fee = a + b (Ln Size), where the advisory fees are scaled in whole basis points, and size is scaled in millions of dollars under management. … This means that equity portfolio size explains only 6% of the variation of mutual fund advisory fees but 27% of pension advisory fee. … ” A fund shareholder who today seeks “clear disclosure” about the advisor’s bill for portfolio management, its advisor’s profitability, or its demonstrated willingness to perform comparable services for significantly lower prices will not find this information…

Citation:
n200 Improving Price Competition, supra note 40, at 79-93 (statement of Matthew P. Fink, President, Investment Company Institute). In fairness, Mr. Fink is not alone in extolling the fund industry’s alleged competitiveness. See, e.g., Alyssa A. Lappen, Funds Follies, Inst. Inv., Oct. 1993, at 39 (“[A] pressing concern [is] quite simply, whether the nation’s banks, as a group, have the financial – or intellectual – wherewithal to succeed in the ferociously competitive mutual fund business.”)….

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Mourning the Death of Peace

Alyssa A. Lappen | February 23, 2001

I am a Jew. I am a poet. I am heartbroken. Next to God and Jerusalem, the thing most central to Judaism is peace. But my people’s fervent prayers for peace – embodied for millennia in every Jewish prayer – every one – again go begging, when they seemed at last so close to fruition. We find our homeland unwittingly immersed in another war, the sixth in Israel’s short life.

The United Nations years ago equated Zionism with the basest human emotion. Yet my most beloved friend, also a poet, was an Arab. Chris Khattar gave me priceless encouragement to renew the poetic voice I had lost for 15 years. Before he died of Hodgkin’s in 1992, I gave him a poem. I am also fortunate to count among my neighbors, colleagues, fellow-poets, like-minded parents and friends, other Muslims and Arabs, Christians, African Americans, East Indians, Native Americans, Hispanics, Chinese, Japanese, and people who are disabled, sightless, gay – anyone, in short, open to mutual respect and willing to bless me with kindness, intelligence, wisdom. By this Jewish precept – respect – I strive to conduct all my affairs.

Last spring I felt great pride in learning that my first chapbook, The People Bear Witness, would soon appear in a journal published by Catholic theologians along with work by a Palestinian poet. Honored to be in his company, I wrote him an email, kindly forwarded by our editor. I was heartened by his praise for my work, but disappointed by his failure to return my salutations – in Hebrew and Arabic – of peace. I had high hopes for the Camp David II talks then in progress; he signed note only, “Cheers.”

Months later as violence erupted, I extended a hand again – a small gesture I nevertheless felt necessary: Jewish theology requires small acts of goodness. These in turn can save lives – and each life is considered as an entire world. His reply pained me: On the one hand, he accepted my sincerity. On the other, he questioned it: “The Jews demand, rightly, apologies and compensation from those who wronged them. These are not part of Israel’s negotiating discourse. That is why, to tell you the truth, I find your signature at the end (Shalom, Salaam) too casual.” For every gain his people might make, he said, “we will pay a terrible price.” I wrote our editor, “When even poets cannot talk, we have a problem in Jerusalem.” I had no idea yet how big.

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Magic, Mourning

for H.H.
By Alyssa A. Lappen

Magic, she said it was magic when
his soul escaped the body, which soon
grew hard, cold. He was gone, “Like that.”
She expects him back, endlessly. “He’s not

here, but where did he go?” She asks.
As if I could answer. Nowhere, somewhere
she can’t see. She woke the kids to share
their father’s end. Sitting with him

Made it easier to know he’s gone.
“A life left,” she said, “the same
way a life is born.” A door closed
that once was opened. This mystery

puzzles me. How does she go on.
How did I. Not having felt the universe
shift the second my father left the world.
I haven’t heart to say how absence scabs

and bleeds again, no heart to say what
she already knows: His exit was magic,
but the door won’t close. She will stand
in the jamb calling “Where did he go? Why?”

This poem was first published in December 2000, in Vol. 1, Issue 5 of Kota Press.

For a Child not Conceived

Clouds, stars, sky
cannot explain why
they exist
and you are yet a question.

I cannot sleep for fear.
My child wraps her stuffed
rabbit in reveries,
unfathomable to me as you.

I love her more.
I want you as much.
Come to me.

This poem was first published in Fall 2000, Vol. 1, Issue 5 of Kota Press.

The Plan

Into the arid space between earth and sky,
the cracks of the human soul seep. They fill

with hail of stones from the Temple Mount,
the Wafq’s iron door slammed, barring Jews

who wish to pray in small circles of ten,
their blue fringed shawls worth lives

of 69 martyrs — if only the shawls stay
folded, unused and grow drenched

with suicides’ blood. Stones play well
in the press. So come puppet children

and hurl them. My poor little slaves
of hate, make of my Iago a saint.

Note: The Waqf is the body of Muslim clerics to which Israel gave control of the Temple Mount in 1967 out of respect for Muslim belief—although it is Judaism’s holiest site, where the Second Temple stood until its destruction in 70 A.D. The Waqf has long denied access to any minyon—the minimum of ten men required by Jewish law to offer prayers. In May, 2000 it began destroying Second Temple remains as well.

First published in Neovictorian/Cochlea, winter, 2001

Blueberries

At the portages, few stopped to pick blueberries
clustered tightly by fistfuls in easy reach, the blue
tears in grey pre-rain light; my son and daughter

sang with the yellow finches feasting on wild delight.
We kneeled among bushes aside the trail, worrying
little beads into our open palms and plastic bags.

Small price we paid: a risk of rain, for prayers.

“Blueberries” was first published in ForPoetry.com in 2000. For old publications, please see the original ForPoetry.com archives.

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