The World's Most Honest Money Manager Tells All

6. Let's talk about some potential solutions. What did the AIMR committee you chaired develop to remedy the damaging effect of high fees?

I was very fortunate to be chairman of the committee, and very happy to be involved in developing trade management guidelines for the investment industry. It was originally called "best execution" guidelines, but nobody could agree what constituted the best execution so we went with trade management guidelines.

I am convinced that it isn't lost on the Securities and Exchange Commission that the preeminent professional organization of money managers and analysts have come up with what we think are best management guidelines.

The interesting thing about our guidelines: There is absolutely nothing new on the list. It simply codifies and lists everything. Of course, you would think every industry would know to tell clients what you're doing with their money, and conflicts of interest that exist. But our industry hasn't done that yet.

The committee spent a lot of time on trading and transaction costs. What we learned is trading is a process, not just an event. If I'm George Soros and I'm going to make a bet against the pound, the process of executing trades is quite different than if I manage an index fund. But we think we have developed a firm set of guidelines and, knock on wood, I think the SEC will adopt them. Hopefully, they're not going to waste time, they'll simply rely on our checklist.

For the first time, with a little help from [former SEC Chairman Arthur] Levitt and [current SEC Chairman William] Donaldson, people are asking, "Why are trades costing 5 or 6 cents instead of less than a penny? For the first time since May Day 1975 [when soft-dollar commissions replaced fixed commissions as the form of compensation between money managers and broker-dealers], you're seeing some real cracks in the dyke.

7. I realize no one has a crystal ball, but how long will this process take?

Well, I'll offer a close but inexact analogy.

Can you believe that our industry didn't have established standards for presenting performance until the past decade? Even the best funds had a composite performance number. It took a good decade, half a generation to implement real changes in the form of Global Investment Performance Standards, or GIPS, an acronym [that] everybody seems to forget what it stands for.

When GIPS first came out, we were in the great bull market, so few people paid much attention to implementation. Given the current market and reformist environment, we hope the trade management guidelines take hold sooner.

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