If mutual funds do not consider mergers, they will be forced to close down, Reuters reports. Because of more educated and skeptical investors and new costs thanks to the ongoing scandal, moves like that recently made by BlackRock Financial to buy State Street Research will not only become the norm, but a necessity.
Other mergers, like the purchase by Wells Fargo of many of Strong Financial's assets, represent what could become a common theme: more scandal-tarnished companies being purchased. Small companies, whether or not they partook in market timing or late trading, will also become merger targets. "There will be a major wave of consolidation in the mutual fund industry," said Hoefer & Arnett analyst Richard Bove.
With mutual fund companies paying a total of more than $3 billion in fines for improper trades, and investors constantly reading the headlines about them, vulnerability has crept into the $7.6 trillion industry. Morningstar Director of Mutual Fund Research Russel Kinnel said that has closed out lesser-known and rule-breaking firms.
"With people focusing on ethics and quality of management, flows have been channeled to a very narrow group of fund families, and that makes it tougher for all the others," Kinnel said.