Repeat after me: It's broke
Lies, damn lies, and mutual funds.
IF IT AIN’T BROKE, DON’T FIX IT. That's a trite phrase that appears in many circles about a whole number of things, especially where meaningful change is being considered. It’s also the line that the Canadian mutual fund industry has been taking for years now. Of course, the mutual fund industry would have us believe things are working fine and that nothing needs to be changed even slightly. It seems the only way to put off the repair job is to deny there is a breakdown in the first place.
The mutual fund industry is badly broken; it just won’t let on. It needs to be fixed desperately. Eliot Spitzer, the Attorney General of New York who initiated the investigations of mutual fund practices in the US, is driving that point home almost on a daily basis.Many well-placed commentators in Canada think the after-hours trading activity so thoroughly discredited in the US is not nearly as prevalent in Canada. These include people who work outside the mutual fund industry (i.e. are not employed by fund companies), so the view seems credible-although potentially naïve. Absent a thorough investigation, we’ll just have to take it on faith for the time being that all is well north of the 49th.
Still, people like fund commentator Steve Kangas have been puzzled by the lack of meaningful response in Canada about the sorts of activities coming to light in the States. “Trust is an issue across the industry” he says, “but fund companies are still advertising on bus shelters as if it’s business as usual.”
Many industry people have noted that the usual zealots like AIM/Trimark, Mackenzie and Royal Mutual Funds hav been conspicuously silent in light of the recent hoopla stateside. Perhaps they’re unanimously silent because they have nothing to say in their own defense. Why is that? Don’t they recognize that this is a great opportunity to set the record straight about internal controls, best practices and general corporate governance?
