"Cleaning up the industry will only serve us better," said Kevin Mailey, president of Quaker Funds, Inc., located on Valley Forge Road. "Strong players remain and that makes for a strong industry."
The Securities and Exchange Commission (SEC) is in the process of making fundamental changes following findings of insider trading and unethical practices. Regulations would require that information be public and that boards have independent trustees with no financial interest in the company, and would impose the 4 p.m. daily deadline for trades.
"When I first came into managing," said Mailey. "Trustees were only 40-percent independent, which meant that they could vote down decisions." That ratio was changed to two-thirds and will be eventually set at 75-percent independent in June of 2004. The SEC also mandated that the chairman of every board be independent.
"A mutual fund company is a trust overseen by trustees that are responsible in seeing that investors are treated equally," said Mailey. Mutual funds have standards to operate by because they are a fiduciary trust, according to Mailey.
Mutual funds, which are groups of stocks from several companies with similar characteristics, are compiled by advisors and then chosen by investors to achieve particular financial goals. Investors are essentially adding their money to others' for mutual benefit. Scandal arose as some investors and managers were given unfair advantages.
"It's violating certain ethical standards," said Mailey. "They were not looking out for the best interest of shareholders." Investors were allegedly allowed to trade stocks past the 4 p.m. deadline, managers participated in "timing" funds and took advantage of insider information, he said.
"It's a lot for the industry to absorb," said Mailey. "I was outraged by some of the things done by people in my industry."
Trading past hours allowed investors to trade at prices different than other investors had to use. "Timing" funds involved trading between time zone differences in Asia and Europe. This practice, engaged in by some fund managers, is not illegal but is not considered acceptable practice.
"There were some individuals and some corporations that allowed this to happen," said Mailey. "It was across the industry but it was not without exception."
Proliferation of unethical practices has increased in the last few years after retirement plans have changed and access to information has increased, according to Mailey. All of these factors have added to the ease and desire of managers to earn more for themselves and investors, even illegally.
Mailey also cites that fewer mutual fund companies are owner- and operator-run than in previous years. In his opinion, this lack of commitment to a company increases impropriety.
"So much of my net worth is tied up in this, I have a vested interest," said Mailey of his company. Mailey has worked in the financial industry since 1975 and the mutual fund industry since 1977.
The effect to Quaker Funds, Inc. has been minimal in comparison to some mutual fund companies, according to Mailey. Several companies lost millions of dollars after scandals caused investors to withdraw funds.
"We haven't had a lot of people concerned because of the way we run the company," said Mailey. His company has not been involved in scandal and gained customers last year, nearly doubling their total assets.
"I firmly believe mutual funds are the best way to invest," said Mailey.
Quaker Funds, Inc. is located at 1288 Valley Forge Road and can be contacted at www.quakerfunds.com or 610-917-8292 or 610-917-9196.