From Conflict to Trust: How Mutual Funds Manage Conflicts of Interest

Author(s):
André Fok Kam

What’s inside

Table of contents

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This is the first book ever published on a novel experiment in mutual fund governance the Independent Review Committee, which has been a regulatory requirement in Canada since 2006. The Independent Review Committee is the first attempt in any country to dedicate a fully independent body to the oversight of mutual funds. Mutual funds are an important component of the investment portfolio of most Canadians. Yet, few investors understand the inner workings of a mutual fund or are aware of the conflicts of interest inherent in the management of a fund. A fund is managed by a manager which enjoys considerable discretion in the exercise of its broad powers and over which investors have little control. There is a risk that the manager will use its discretion to further its own interests rather than those of investors. The book describes the major conflicts of interest which may arise in the operation of a mutual fund and explains how they may be managed, with particular emphasis on the critical role of the Independent Review Committee. The theme of the book is that, provided appropriate controls are in place, conflicting interests need not be incompatible with mutual trust between investor and fund manager. A must read for:

  • Investors and their advisers
  • Fund managers
  • Portfolio advisers
  • Investment and mutual fund dealers
  • Independent Review Committees of investment funds
Invest in knowledge:
  • Many books exist on how mutual funds are regulated; this one explains how they actually work
  • It contains information you shouldnt be without, especially in the wake of the publication of National Instrument 81-107 Independent Review Committee for Investment Funds
  • It is written in plain English, by an author with first-hand experience of the investment fund industry
  • It offers a comprehensive glossary; youll never have to wonder about what a particular term means
  • It includes further reading suggestions for those who want to delve deeper into a subject
What experts say about From Conflict to Trust by André Fok Kam
  • Andrés timely book expands upon and explains in detail conflicts of interest in a Canadian mutual fund organization first mentioned in my modest 1993 paper Managing Potential Conflicts of Interest. Andrés book is a very useful addition to the Canadian mutual fund literature and it should be required reading for Independent Review Committee members and for anyone interested in learning how Canadian mutual funds are operated. Stephen Erlichman Partner, Fasken Martineau DuMoulin LLP
  • The book is an important analysis of the operation of mutual funds in Canada, and is a helpful primer on the structure and regulation of Canadian mutual funds. The book has an excellent discussion about the inherent, but manageable, conflicts of interest between investors and managers, and will be a useful tool for members of Independent Review Committees. Stephen J. Griggs Executive Director, Canadian Coalition for Good Governance
  • This is a welcome addition to the Canadian investment scene. It is a very practical guide to how mutual funds work, at a time when excessive complexity and opaqueness have proven troublesome. It is well worth the read. Simon Romano Partner, Stikeman Elliott LLP (Toronto)
  • A must read not only for Independent Review Committee members but also for all professionals in the mutual fund industry, whether new or experienced, who will benefit from the well organized and comprehensive wealth of information in the book. Joanne Vézina Past Chair of the Quebec Investment Funds Council Chair of the Independent Review Committee of the Standard Life Mutual Funds
  • Those who set up Independent Review Committees were hard pressed by time and by a daunting challenge: uncovering conflicts of interest confronting asset managers, defining policies and procedures on those conflicts and informing all stakeholders about their achievement. After two years of intensive work by Independent Review Committees, this book should help them evaluate what has been accomplished so far and determine if they have fulfilled their mission. Louise Champoux-Paillé Past Chair of the Bureau des services financiers, a Quebec financial services regulator
  • A thoughtful analysis of the inner workings of mutual funds and conflicts of interest inherent in their operations. It will be useful to us all in fulfilling our duties as Independent Review Committee members. Louise Vaillancourt-Châtillon Chair of the Independent Review Committee BMO Harris Private Portfolios BMO Mutual Funds BMO Nesbitt Burns Group of Funds Guardian Group of Funds
Table of Contents INTRODUCTION WHY BE CONCERNED ABOUT CONFLICTS OF INTEREST?
  • How Mutual Funds Are Established
  • The Agency Problem
  • Independent Review Committees
  • Points to Consider
  • Further Reading
A MUTUAL FUND COMPLEX
  • The Parties in a Mutual Fund Complex
  • How the Mutual Fund Industry Is Regulated
  • Points to Consider
  • Further Reading
THE BUSINESS MODEL OF A FUND MANAGER
  • How a Fund Manager Makes Money
  • Strengths of the Business Model
  • Risks to the Business Model
  • Points to Consider
  • Further Reading
MORE COMPLEX BUSINESS MODELS
  • Three Main Business Models
  • Integrated Players
  • Diversified Financial Groups
  • Points to Consider
  • Further Reading
HOW A MUTUAL FUND PORTFOLIO IS MANAGED
  • The Role of the Portfolio Adviser
  • How to Construct a Portfolio
  • How to Analyse Stocks
  • Active versus Passive Management
  • Mutual Fund Categories
  • A Modest Proposal
  • Further Reading
CONFLICTS OF INTEREST IN THE MANAGEMENT OF A FUND PORTFOLIO
  • Why Mutual Funds Rarely Fail
  • The Advisers Conflicts of Interest
  • The Role of the Trade Order System
  • Points to Consider
  • Further Reading
HOW TRADE ORDERS ARE EXECUTED
  • The Order Execution Process
  • Best Execution
  • The Measurement of Trading Costs
  • Transaction Cost Analysis
  • The Impact of Trading Costs on Fund Performance
  • The Advisers Conflicts of Interest
  • Points to Consider
  • Further Reading
FURTHER CONFLICTS OF INTEREST IN THE EXECUTION OF TRADE ORDERS
  • The Problem of Soft Dollars
  • A Wider Choice of Destinations
  • Points to Consider
  • Further Reading
HOW MUTUAL FUNDS ARE DISTRIBUTED
  • Distribution Channels
  • Dealer Remuneration Models
  • Alphabet Soup
  • The Suitability Rule
  • The Regulation of Mutual Fund Sales Practices
  • Points to Consider
  • Further Reading
THE OPERATION OF A MUTUAL FUND PART 1
  • How Mutual Funds Are Priced
  • Market Timing
  • Late Trading
  • Points to Consider
  • Further Reading
THE OPERATION OF A MUTUAL FUND PART 2
  • The Management Expense Ratio
  • The International Comparison of MERs
  • Reporting by Mutual Funds
  • Points to Consider
  • Further Reading
COMPETING PRODUCTS INVESTMENT FUNDS
  • Investment Funds
  • Closed-end Funds
  • Exchange-traded Funds
  • Points to Consider
  • Further Reading
COMPETING PRODUCTS INVESTMENT WRAPPERS
  • Investment Wrappers
  • Segregated Funds
  • Universal Life Insurance
  • Structured Products
  • The Shape of Things to Come?
  • Further Reading
APPENDIX: MUTUAL FUND INVESTING GLOSSARY BIBLIOGRAPHY INDEX
About the Fidrisk Col

Publisher:
Carswell

Practice Area:
Banking and Finance Law,Taxation Law

Jurisdiction:
General

Publication Date:
2009-03-07

Hardcover Specifications

Service #:
30835114

Sub #:
30835114

Pages:
Not available

Shelf Space:
Not available

Volume:
Not available

Anticip Unkeep Cost:
Not available

eBook Specifications

ISBN:
9780779819287