In the past year, the SEC has been continuing its enforcement efforts in the investment management area, some of which even involve mutual fund directors. At the same time, despite the U.S. Supreme Court’s decision in Jones v. Harris, plaintiffs have enjoyed some success in early stage shareholder litigation filed under Section 36(b) of the Investment Company Act. We also observed last year a few sweep exams, including one regarding sub-transfer agency fees and services and another with respect to exemptive order conditions. The SEC has also announced a 2013 sweep exam with respect to distribution and sub-transfer agency fees.

It’s clear that the mutual fund industry as a whole has been experiencing a good deal of change. In 2012, for example, there was a very large uptick in ETF applications, particularly active ETF applications after the SEC lifted its derivatives ban on these types of ETFs.

The increasing popularity of all types of ETFs has drained assets from traditional mutual funds, a trend that is likely to continue and intensify.

Another trend in 2012 was the increase in the number of omnibus account holdings where the omnibus intermediary performs transfer agency services traditionally provided by the transfer agent. These intermediaries have had a significant financial impact on mutual funds and their sponsors because many channels charge much more than what a transfer agent charges for what may be the same services. This trend can potentially diminish shareholder returns and service provider profitability.

Against this backdrop, below are some of our thoughts on issues mutual fund boards will face in 2013 in one form or another.

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Source: Investment Management Thoughts for Fund Directors: 2013
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