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Articles 1 - 3 of 3
Full-Text Articles in Law
Myths About Mutual Fund Fees: Economic Insights On Jones V. Harris, D. Bruce Johnsen
Myths About Mutual Fund Fees: Economic Insights On Jones V. Harris, D. Bruce Johnsen
D. Bruce Johnsen
Mutual funds stand ready at all times to sell and redeem common stock to the investing public for the net value of their assets under management. In the language of transaction cost economics, they are open-access common pools subject to virtually free investor entry and exit. The Investment Company Act (1940) requires mutual funds to be managed by an outside advisory firm pursuant to a written contract, which normally pays the adviser a small share of net asset value, say, one-half of one percent per year. Following 1970 amendments to the Investment Company Act imposing a fiduciary duty on advisers …
The Sec's 2006 Soft Dollar Guidance: Law And Economics, D. Bruce Johnsen
The Sec's 2006 Soft Dollar Guidance: Law And Economics, D. Bruce Johnsen
D. Bruce Johnsen
After some two years of deliberations, in July 2006 the SEC released its long-awaited Guidance on the scope of the “soft dollar safe harbor.” Passed as part of the Securities Acts Amendments in May, 1975, the safe harbor has protected fund advisers and other money managers for over 30 years from criminal actions and civil suits for breach of fiduciary duty when they use client assets to pay more than the lowest available brokerage commissions in exchange for “brokerage and research services.” During this time the SEC has interpreted and re-interpreted the safe harbor’s scope, largely owing to the public …
Directed Brokerage, Conflicts Of Interest, And Transaction Cost Economics, D. Bruce Johnsen
Directed Brokerage, Conflicts Of Interest, And Transaction Cost Economics, D. Bruce Johnsen
D. Bruce Johnsen
This paper relies on the economics of transaction costs to assess the likely effect on investor welfare of the U.S. Securities and Exchange Commission’s (SEC’s) prohibition on a puzzling business practice known as directed brokerage. Its key insight is that the quality of a broker’s execution of portfolio trades is difficult for a mutual fund adviser to assess until it is too late ─ that is, execution quality is an “experience good.” Low-quality brokerage can substantially reduce investor returns. To have the incentive to provide high-quality execution, a broker must expect to receive a stream of premium portfolio commissions in …