Saturday, October 28, 2006

Rational Realist Comments
The Rational Realist was asked to comment on Elliot Spitzer's crackdown on twenty-seven mutual fund companies improper sharing of service fees with third party record keepers. The complaint says that mutual funds paid a fee to outside firm, Bisys, who paid up to 75% of that fee back to the fund company. In other words, the fund companies overcharged investors for outside services and then received most of that charge in the form of a kickback. My comment is that this does not surprise me and it shows the stupidity and greed of fund companies and their executives. Is it worth ruining one's career for ten to fifteen basis points? These kickbacks happened at bank-owned mutual funds for crying-out-loud. Bank-owned funds are already overpriced! The extra fee could have been tacked on to the management fee and no one would have been any wiser. Memo to fund executives: if your going to ruin your career do it in a big way, not for ten basis points. If you are dumb enough to only steal ten basis points you deserve career death.

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