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The Clash of the Cultures: Investment vs. Speculation by Arthur Levitt Jr., John C. Bogle

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Chapter 5

Are Fund Managers True Fiduciaries?

The “Stewardship Quotient”

Give an account of thy stewardship, for thou mayest be no longer steward.

Luke 16:2

The leaders of the mutual fund industry, and of its trade association, the Investment Company Institute, purport to represent mutual fund shareholders. But in fact they represent the management companies that operate the funds. The themes of the industry’s annual General Membership Meetings ignore this conflict. Indeed, for three recent years, 1997, 2000, and 2008, the theme focused on “A Tradition of Integrity.” In his remarks at the ICI’s General Membership Meeting in May 2003, Matthew Fink, then president of the ICI, pointed with pride at the industry’s then-rock-solid reputation.

Fink cited SEC commissioner Harvey Goldschmidt’s glowing tribute just a few months earlier: “The mutual fund industry has been blessed—and blessed is the only word—by being relatively free of scandal.” As he read those words, they were displayed as giant images on both sides of the dais. Fink then added: “The record is no accident . . . We have succeeded because the interests of those who manage funds are well-aligned with the interests of those who invest in mutual funds.”

Fink’s comments echoed those of ICI chairman and senior executive of the American Funds group Paul G. Haaga, Jr., the keynote speaker: “Our strong tradition of integrity continues to unite us . . . The word integrity has been the theme of every recent general membership meeting ...

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