Half of all of U.S. households own shares in one or more mutual funds, either directly or through personal or employer-sponsored retirement accounts. This article describes the structure and regulation of mutual funds and the resulting incentives facing those who make decisions for the funds. After providing some basic institutional details, it focuses on the cash flows from mutual fund investors to fund managers, brokers, and other third parties and the associated conflicts of interest. The article concludes with a summary of recent legal proceedings against mutual fund managers and brokers based on improper trading practices and regulatory proposals to curb those practices.

Citation
Paul G. Mahoney, Manager-Investor Conflicts in Mutual Funds, 18 Journal of Economic Perspectives 161–182 (2004).