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Did you even know about this very well hidden mutual fund conflict-of-interest?

Its tough for 401k plan sponsor to fulfill their fiduciary duty when most professionals didnt even know about this one.

By Chris Carosa | Updated on April 02, 2014

While working on the white paper featured in the “Exclusively for Members” section of our FiduciaryNews.com monthly newsletter, I trolled the internet to see if I had missed any peer-reviewed research papers on the subject of mutual fund conflict-of-interest. Admittedly, there have been many and I’ve reported on quite a few of them, but, scientist that I am, I always suspect there remains at least one stone unturned. And I was right.

And what a rock of insight it was. Here was an academic paper – as far as I can tell not published anywhere – by a couple of professors from the least likely places: Iowa and Australia. This conflict-of-interest is so hidden, the two authors had to construct their own metric to identify it. And here’s the most amazing part – the data they used did not come from the fund prospectus, its Statement of Additional Information or, indeed, any other fund document. Instead, they found it in several of the standard questions on the FORM ADV of the fund’s investment adviser. For the full story on the issue – called “cross trading” – including comments from one of the authors of the paper, read “New 401k Plan Sponsor Fiduciary Worry: Study Reveals Previously Unpublicized Conflict of Interest Can Harm Mutual Fund Performance” (FiduciaryNews.com, April 1, 2014).

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