A Voting Rights Issue That Hits Home for Investors

Mutual fund shareholders have the legal right to vote on their funds' advisers and subadvisers. But what the law giveth, the Securities and Exchange Commission taketh away.

Over the past six years, the SEC has permitted dozens of so-called multimanager funds to fire and hire fund subadvisers without shareholder approval. What began as a reasonable accommodation of an unusual management structure has become a major loophole exploited by dozens of funds. These funds make no pretense of following a bona fide multimanager strategy, yet the SEC allows them to replace a fund's portfolio manager without consulting shareholders.

The Multimanager Exemption

The first multimanager exemption was granted in 1995 to Frank Russell Funds. Frank Russell says it pioneered the "multistyle, multimanager" investment method. Frank Russell picks the managers (or subadvisers, as they are known in the industry), and the managers pick the investments. ...