Arianna Huffington in today’s LA Times talks about a big mutual fund conflict of interest. They get fees for managing 401K accounts of large companies. If they vote against management of these corporations, or dump their stocks from their mutual funds, the owners of the shares of the fund (you) might do better, but the fund’s management (them) rick having the companies dump them from managing the company’s 401K plan, and the resulting revenues of the are in peril. THEIR money comes from management fees, NOT from how well their funds perform.
“For instance, the nation’s largest mutual fund, Fidelity, which owns 5.3% of Tyco’s stock, also earned $2 million in 1999 for its part in running Tyco’s 401(k) plans. Last year, more than 50% of Fidelity’s $9.8 billion in revenue was generated by administering 401(k) plans and other employee benefit services for about 11,000 companies, including Philip Morris, Shell, IBM, Monsanto and Ford.”
Those running the mutual funds know that if they rock the boat they jeopardize their chances of getting the contracts for these services. So, with ownership essentially AWOL, irresponsible corporate execs have been allowed to run wild. Not surprisingly, mutual funds have consistently refused to disclose how they vote. As California Treasurer Phil Angelides told me, “That silence speaks volumes.”
Whose interests do you think they are going to choose? Yours or their own?