Can Fund Boards Make a Difference?

So I think they're good people who are smart and have investors' well-being at heart. I'm not sure the process is terribly helpful, and I think I may be speculating, but I think that Professor Coates and I might agree that the role of the fund boards is not terribly critical to the functioning of this industry.

Leggio: Professor Coates, do you agree with that assessment?

Coates: Not entirely. I'm not sure that Professor Birdthistle agrees with this, but I believe that competition and investor choice is the more important force constraining advisor fees, that boards are, however, important, and they are important for two reasons.

First, there are many other functions that a fund board has to perform, such as reviewing conflict of interest transactions, that I don't think could be very effectively performed by anyone else. In Europe they're performed by regulators. I don't think that's a good model for our industry.

But even within the fee context, there's an important role for boards, which is that they can take account, for example, of growth in a fund and impose, as many have done over the years, break points in the fee schedule so that the fees, as a percentage, get lower as the fund gets larger.

They've done that in numerous instances, and I believe based on conversations with fund boards, that the quality of the board and the intention of the board does matter to whether or not they're able to achieve those cost savings for investors.