Much has been written about the legal niceties of soft dollars in the context of mutual fund operations, particularly what is allowed and how it can be legally accomplished. Little has been written about the economics of soft dollars. The industry has long argued that fund shareholders benefit. Once the underlying dollar flows are laid out it becomes clear that, while technology will erode the creation of soft dollars, they are not going away quickly because (1) they are well accepted in the securities industry and (2) they make pretty good sense since the brokerage commission has to be built into the share price. On the other hand, an understanding of both sides of a soft dollar transaction, creation and recapture, highlights the need for independent directors to stay alert to the potential for unfair treatment of the fund investors.

A playlet about a discussion between a candidate for Fund Directorship and his or her spouse
A one act playlet written by C. Meyrick Payne, partner of the mutual fund governance consulting firm, Management Practice Inc., and performed for the Mutual Fund Directors' Forum on September 22, 2003

The playlet will take about 15 minutes and consists of dialog between an independent mutual fund director and his spouse. The following the action, there will be time for a question and answer period to amplify the discussion. A transcript of the playlet is available on www.mfgovern.com and may be copied or modified, with attribution, to raise awareness of current issues in the fund industry.

This Management Practice Inc. (MPI) Bulletin summarizes the detailed findings of our first survey of Canadian Mutual Fund governance practices. This is based on a comprehensive review of the Annual Information Forms filed in the year 2000 by all Canadian Mutual Funds, together with confidential responses from the survey participants. The second edition of this survey for 2001 will also be based on AIFs and participant responses. It will be issued later this year.
Governance of mutual funds in Canada is a hodgepodge of oversight techniques that reflect differing provincial and federal tax, regulatory and legal requirements. In recent times some rationalization has occurred with a trend toward governance independent of the fund manager. This Bulletin explores this trend and summarizes the survey findings about compensation of independent trustees or directors.

The purpose of this MPI Bulletin is to help mutual fund directors think through their responsibilities in connection with an SEC Examination. A panel of mutual fund experts, including an independent director and a representative from the SEC, convened under the auspices of Fund Directions to discuss this issue.

First and foremost, the new SEC Chairman, Harvey Pitt, has emphasized that the SEC is service organization, where there is no inherent virtue in playing "Gotch ya!" He has spoken eloquently about building a partnership with the accounting profession to cooperatively enforce the law and bring abnormalities to light. The panel concluded that the routine listing of inconsequential record keeping deficiencies would play a major part in future SEC examinations. On the other hand, substantive departures from sound business practices, particularly those that reflect veniality and disservice to public investors is not to be tolerated. The success of the mutual fund industry is, in large part, based on the confidence that investors have in the mutual fund industry.