According to the Wall Street Journal, mutual fund board directors are typically paid a great deal for very little work, and moreover are not truly independent nor motivated to question high mutual fund manager compensation. This controversy over ridiculously high mutual fund director pay is not new, but the powers that be had largely managed to keep this dirty little secret about Wall Street under the mainstream radar until now.
Not truly independent
“Corporate boards fire CEOs all the time, or they change the company’s direction, but with mutual funds it almost never happens,” explains John Morley, a professor at Yale Law School who is an expert on fund oversight and compliance. Morley goes on to say while mutual-fund directors are supposed to be “independent,” in reality they are usually selected by the fund manager they allegedly oversee, and investors rarely if ever actually get to vote for them.
ValueWalk's Raul Panganiban interviews Joseph Cioffi, Author of Credit Chronometer and Partner at Davis + Gilbert where he is Chair of the Insolvency, Creditor’s Rights & Financial Products Practice Group. In the interview, we discuss the findings of the 3rd Annual report. Q2 2021 hedge fund letters, conferences and more The following is a computer Read More
Examples of egregious mutual fund director pay
In one mind-boggling example, the outside directors of the boards of a cluster of Pacific Investment Management Co. mutual funds were paid between $306,000 and $417,000 for the year ending March 31, 2013. The directors on the board of most of BlackRock, Inc. (NYSE:BLK)’s funds were paid $315,000 to $388,750, and at Fidelity outside directors of some equity funds were paid $400,000 to $554,250 in 2013, according to regulatory filings. In addition, those directors are often appointed to the boards of more than 100 funds within the fund families, and are supposedly giving every fund an equally intensive review.
In other examples, the outside directors of oil giant Exxon Mobil Corporation (NYSE:XOM) were paid around $340,000 each in 2013, and directors received close to $300,000 each at International Business Machines Corp. (NYSE:IBM).
“It’s a very sweet deal,” says Niels Holch, the executive director of the Coalition of Mutual Fund Investors, an advocate for small investors.
The WSJ article points out the document that discloses the most about mutual-fund boards, including mutual fund director pay, manager fee schedules and how many different fund boards the directors sit on, is obscure and little-known. This document is called the Statement of Additional Information or SAI.