The Mutual Fund Industry: Competition and Investor Welfare (Columbia Business School Publishing)

Mutual funds form the bedrock of retirement savings in the United States, and, considering their rapid growth, are sure to be more critical in the future. Because the size of fees paid by investors to mutual fund advisers can strongly affect the return on investment, these fees have become a contentious issue in Congress and the courts, with many arguing that investment advisers grow rich at the expense of investors. This ground-breaking book not only conceptualizes a new economic model of the mutual fund industry, but also uses this model to test for price competition between investment advisers, evaluating the assertion that market forces fail to protect investors' returns from excessive fees. Highly experienced authors track the growth of the industry over the past twenty-five years and present arguments and evidence both for and against theories of adviser malfeasance. The authors review the regulatory history of mutual fund fees and summarize leading case decisions addressing excessive fees. Revealing the extent to which the governance structure of mutual funds truly impacts fund performance, this book provides the best understanding of today's mutual fund industry and is a vital tool for investors, money managers, fund directors, securities lawyers, economists, and anyone concerned with the regulation of mutual funds. Contents List of Figures List of Tables Foreword Preface Introduction The Mutual Fund Industry and Its Critics Mutual Funds and U.S. Retirement Assets Mutual Fund Pricing Purpose of the Book Organization of the Book CHAPTER ONE. Mutual Fund Industry Growth and Importance in Retirement Plans Mutual Fund Growth Mutual Fund Growth in Retirement Plans Mutual Funds and the Pension Protection Act of 2006 Government Pension Plans: Further Opportunity for Growth in Mutual Funds Summary and Conclusions CHAPTER TWO. Mutual Funds and Charges of Excessive Fees: The Historical Background Fees Are Excessive: The Critics’ View Early Mutual Fund Management Malfeasance and U.S. Regulations, 1924– 1940 The 1950s and 1960s Proposed Regulatory Solutions to Excessive Fees CHAPTER THREE. Mutual Fund Excessive Fees and the Courts Gartenberg Case Background The District Court’s Decision in Gartenberg The Appellate Court’s Decision in Gartenberg Subsequent Court Decisions Summary and Conclusions CHAPTER FOUR. Price Competition and the Demand for Mutual Funds Prior Studies An Alternative Approach to Examining Competition in the Mutual Fund Industry The Model Estimating the Demand for Mutual Funds and Corresponding Price Elasticities Simulations of the Model Summary and Conclusions CHAPTER FIVE. Mutual Fund Industry Structure and Indicators of Price Competition Industry Structure Investors’ Willingness to Switch Mutual Funds Fund Distribution Channels Product Innovations and Price Competition Further Direct Evidence of Price Competition Summary and Conclusions CHAPTER SIX. Mutual Fund Pricing, Excessive Fees, and Empirical Evidence Introduction Mutual Fund Market Segments and Fee Disparities Price Dispersion and Price Competition Economies of Scale in Mutual Funds and Price Competition Increasing Expense Ratios as Evidence of No Price Competition Summary and Conclusions CHAPTER SEVEN. Mutual Funds’ Organizational Form and Conflicts of Interest Introduction Assessing Internal Management and Nonprofit Status The Vanguard Group TIAA- CREF Performance Comparisons: Vanguard, TIAA- CREF, and Rival Funds Summary and Conclusions CHAPTER EIGHT. What Have We Learned? Introduction The Excessive Fee Hypothesis Principal Findings Excessive Fees and Mutual Fund Regulation Conclusions Appendix to Chapter Four The Analytical Framework The Single- Nested Model Cost Function Simulation of Competition Between Two Complexes with Four Funds Empirical Estimation of the Nested Logit Demand Model Empirical Estimation of Own- Price and Cross- Price Elasticities The Two- Nested Model The Demand for Funds Complex and Distribution Channel Goodwill Estimation of the Principles of Differentiation Generalized Extreme Value Model Theoretical Aspects of the Principles of Differentiation Generalized Extreme Value Model Solving the Principles of Differentiation Generalized Extreme Value Equation Appendix to Chapter Seven Multivariate Results Notes Bibliography Index

mutual Funds Form The Bedrock Of Retirement Savings In The United States, And, Considering Their Rapid Growth Over Recent Decades, Are Sure To Become Even More Financially Critical In The Coming Decades. Because The Size Of Fees Paid By Investors To Mutual Fund Advisers Can Strongly Affect The Return On Investment, These Fees Have Become Contentious In Congress And The Courts, With Many Arguing That Investment Advisers Grow Rich At The Expense Of Investors.

this Groundbreaking Book Not Only Conceptualizes A New Economic Model For The Industry But Uses This Model To Test Price Competition Between Investment Advisers. Its Highly Experienced Authors Track The Growth Of The Industry Over The Past Twenty-five Years And Present The Arguments And Evidence Both For And Against Theories Of Adviser Malfeasance, As Well As The Assertion That Market Forces Fail To Protect Investors' Returns From Excessive Fees. The Volume Briefly Reviews The Regulatory History Of Mutual Fund Fees And Leading Case Decisions Addressing Excessive Fees. It Also Reveals The Extent To Which The Governance Structure Of Mutual Funds Impacts Fund Performance. There Is No Greater Text For Those Who Seek To Understand Today's Mutual Fund Industry, Including Investors, Money Managers, Fund Directors, Securities Lawyers, Economists, And Those Concerned With Regulatory Policy Toward Mutual Funds.