Title: Scandal Date: 1/23/04 The papers are rife with articles regarding mutual funds; the primary investment vehicle of Gallagher Investment Services. So it behooves me to address this issue with this quarter's missive. There are a myriad of serious issues, but I will address only the ones that are parallel to my business. How funds charge customers is important. How they disclose these fees, though, is paramount. Why? There are thousands of funds managed by hundreds of firms so competition is intense and fees reflect that fact. Regulating the amount of fees, therefore, is absurd and presumptuous. The market can do it better and cheaper than Spitzer ever could. However, if the fees are not properly divulged, say hidden in the fine print in those little pamphlets they always send you, then the client is duped. All fees should be disclosed upfront in a manner that is clear and easy to understand. As long as the consumer can easily evaluate the different funds based on performance, service, and costs he or she is well-served. It is the hidden costs that mar the industry. Brokers or advisors that do not disclose all methods of remuneration are deceiving the client and committing fraud. Investors should know just what the costs are and who receives them. I do not, however, believe the investor must know how the fees are spent. For example, if the fund wants to use fees to market the fund so be it. As long as all the costs are revealed, where they spend their revenue is up to the company same as any other industry. This shake up is good for the long-term propriety of the mutual fund industry. It will force firms to alter their sales practices and be more forthright with the consumer. It will make investors more aware and better able to compare services. Additionally, it should also make the industry even more competitive; something every investor should welcome. How does this impact my business? Very little actually, because I contemplated these issues while developing my business plan for Gallagher Investment Services. I always believed a straight fee-based business was best for the client. The costs are glaringly clear to the investor and clean from a regulatory view. Every client pays a fixed percentage of assets under management so they can easily calculate their fee without ever reading my quarterly invoice. Now how do I choose mutual funds? Fidelity offers thousands of mutual funds, both Fidelity and non Fidelity, to my clients on a no transaction fee basis. This allows me to choose what I believe is the best fit for my clients without any outside influence. I can also choose other funds that do charge a transaction fee if I feel the extra cost is warranted. I do not accept any other fees, recompense or rewards from any other source. This insures that my interests and my clients are perfectly aligned. So the recent articles are disquieting and should cause investors to reassess their broker or investment advisor. They do, however, reinforce my view that a fee based system is a superior business model that serves both the client and allows for reasonable profits for the advisor. Marty Gallagher <- Back Home