About this Book

Regulators have tended to believe this dynamic is the result of a fundamental conflict of interest between investment advisers and the funds they advise. Their preferred remedy has been ever-tighter regulation and greater independence for funds' boards of directors, which negotiate fees and expenses with the advisers. Competitive Equity argues that the problem is not too little regulation, but too much and of the wrong kind. The authors show how current government regulatory policy leads to de facto rate regulation by fund boards. Acting remarkably like public utility commissions, boards today set fund fees on the basis of reported costs plus a "reasonable" profit, thus undermining advisers' incentive to aggressively cut costs and compete to lower prices. To restore competition, the authors recommend the creation of a new, alternative legal structure for collective investment, the "managed investment trust," which could eventually supplant traditional mutual funds, creating a more vibrant marketplace for investors.