Champ

PALM DESERT, Calif. – The Risk and Examinations Group of the Division of Investment Management at the Securities and Exchange Commission will be paying visits this year on independent directors of mutual funds.

The point: To ask “tough questions” about the oversight role they performing, said Norm Champ, the director of the investment management division.

The questions will be asked in field visits to mutual fund complexess, at their headquarters, he said at the Investment Company Institute’s annual Mutual Funds and Investment Management Conference here.

The risk unit and Champ will be asking the fund directors at large and small fund complexes whether they are stretched too thin and focusing properly on fees, he said.

"I understand the efficiencies of a single board for multiple funds within a fund family,’’ he said. “But at some point, does it become too many funds for a board to oversee? How many is too many? Is it 4, 14 or 140?''

The SEC’s Office of Compliance and Inspections Examinations will also be involved in visits to the largest and “most strategically important’’ funds, he said.

Among the ‘”tough questions” to be asked will be:

  • Are fund directors overextended?
  • Are fund directors' responsiblities' properly allocated?
  • Do fund directors spend time on the issues where they believe they can provide the most value?
  • Are fund directors asked to oversee too many funds?
  • Do fund directors focus properly on fees paid to subadvisers?
  • Do fund directors focus too much on fees paid to the advisers that oversee the subadvisers?
  • Do they focus on fee arrangements on securities lending agents, particularly when done with affiliates?
  • What about fee splits and flat fees?
  • Can they focus on these issues well on a fund by fund basis?

"Fund investors in individual funds deserve independent directors focus on a particular fund they own, not just a focus on the entire fund complex,'' he said.
Also under review will be the systems, controls, personnel and culture at the fund complexes, he said. And visits will occur at the fund complexes’ headquarters. This is to get a good sense of their business operations "by seeing them on their home turf,’’ he said.

 

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.