Mutual funds and financial advisors have grown up with each other. Our profession's major source of compensation no longer comes from life insurance or tax gimmicks, but from asset management. Fee-only, fee-based, fee and commission, commission only, you name it, the primary vehicle of financial-advisor compensation at this time is "assets under management." The primary assets being managed are mutual funds.

My last Morningstar Principia disc (May 2001) reports 12,715 mutual funds, averaging $335.53 million each. This totals almost $4.3 trillion under mutual fund management. Working through Principia, it appears, only 1,038 of those funds were in existence a mere 15 years ago. Fidelity alone now sponsors more than 300 funds. Fiduciary advisors are the responsible intermediaries for significant portions of the growth in mutual funds. Yet, for all intents and purposes, we have been blocked from meaningful participation in their governance and shareholder accountability.

It is time for a fresh look at the relationships between mutual funds and the financial planning profession. This look should include rethinking methods of communication, compensation issues, expense ratios, shareholder accountability and our evolving notions of fiduciary accountability.

Theoretically, mutual funds provide an ideal blend of professional management at a reasonable price. Combined into prudent, disciplined asset allocations, they enable their shareholders (including "the little guy") to have access to the best and brightest investment brains in the business while putting together sensible asset allocation or investment policies. Clearly, this is no longer just your grandfather's investment vehicle. This is a big-time, big-bucks medium for receiving a good chunk of the world's wealth.

So what's the fuss? The fuss is about our specific and generic fiduciary obligations. The fuss is in our relationship. The fuss is about the one-way communications and the absence of high-quality light being shone upon the inner workings or in creating logical points of informed discussion. The fuss is about being blind-sided by management changes, corporate ownership, establishment of fund expenses and other information relevant to our buying decisions. The fuss is especially about doing the right thing by our

clients and taking some prudent steps to make sure they are getting their promised quality of product and service. The fuss is about being compensated fairly and appropriately when we provide individual, special value to them-and I do not mean little bribes and baubles.

No quarrel that mutual funds have shown themselves mostly to deserve the extraordinary trust being given them. As far as we know, most funds are run in manners that are generally honest, fundamentally competent and genuinely valuable. But what do we really know? Do we know when mandates are being periodically violated? Can we hold our managers to scrutiny when they attempt to cover discipline departures with periodic window dressing? Do we know that a manager is allowing personal problems to interfere with his or her duties? When a relatively cozy little fund family is on the block, imminently to be jetted into the mainstream of the financial services wars, do we know that it is trading on its past record and only vaguely resembles the fund that earned it?

Bad things can happen in ownership transitions. Our clients have a right to know whom they hire. Do we know how a manager's incentives are distributed? We know what Alex Rodriguez makes. What about star managers? Or those year-end bonuses for doing their job? Do we know when they get lazy or bored? Do we understand cost incentives for working with a particular platform or whether it is appropriate to close? Do we have viable, mutually accountable personal relationships with the policy makers or just the sales forces? Are we buyers on behalf of our clients, or are we ourselves the target?

Despite all the obvious mutual fund virtues, the fact is that their governance is a shadowy, elusive, unaccountable kind of thing. Our current method of interface is replete with substantial shortcomings. What do we know that could help us truly differentiate funds within an asset class? When mines were filling with deadly gas, miners had canaries to warn of impending disaster. Do we? When should we hear tales from the heartland of mutual fund governance? Foreknowledge would be a real value investment.

So-called no-load mutual funds clearly expect fiduciary advisors to function as their unpaid sales force. Although we do not have any obvious clutter with them, the simple fact is that they throw extraordinary resources at publicizing themselves and building ties. They help fund our primary modes of intraprofessional communication, including our magazines (Financial Advisor among them). They have been instrumental in financing our profession's gatherings over the years and have even served as the financial infrastructure of our professional associations. Indeed, some would argue that we have even let them define the nature of our profession itself by offering us viable payment mechanisms.

Don't get me wrong. I love mutual funds. I own them, and I advise clients to put them in their portfolios. Nonetheless, should we not have an ability to get behind the curtain? Maybe there are wizards there. Maybe it is something a bit less impressive.

Every so often, we need to pinch ourselves with the reminder that we are fiduciary advisors, charged with helping our clients with intelligence, skill and prudence. It is not our primary duty or function to sell mutual funds or any other investment vehicle. Our primary duty puts us in positions as fiduciary advisors to people with needs to access great investment vehicles at reasonable prices without surprises. At that juncture, we represent shareholders, and we buy mutual funds on behalf of shareholders. In aggregate, we are the giant client in a huge industry. They have fiduciary obligations to us. Why don't we know more?

The query is this: What do the shareholders know about how their funds are being managed, how strategic decisions are made on their behalf or how their subadvisor contracts are made and administered? If we don't know, they don't know either.

It is, of course, the articulated goal of many mutual funds to better "understand our needs." Let's give them the chance. Let's have our colleagues serve on their boards of directors.

I am not suggesting that financial advisors act independently to get board appointments out of context. Nor am I suggesting that each of us has a duty to get ourselves on boards of each of our primary partners. Rather, I suggest we use one or more of our professional associations to put together a "Get a CFP Onboard" program. I am suggesting that the profession establish a viable mechanism for enabling its constituency to fulfill cooperatively its fiduciary duties, while enabling improved communications and mutual fund accountability. Collectively, the profession can act for the benefit of all of us through sponsoring the service of fiduciary advisors on mutual fund boards of directors. Collectively, we can enable the accountability that necessarily eludes each of us, one on one.

This would have several virtues:

1. It would enable and encourage communication between fund companies and fiduciary advisors.

2. It would promote managerial accountability.

3. It would facilitate intraprofession communication appropriate to a genuine profession and the duties of fiduciary advisors.

4. It would provide appropriate compensation for individuals currently giving away valuable skills, information and insights into "the RIA market."

5. It would serve as a source of non-dues revenue to the organizing body.

6. It would enable us to know what is happening on behalf of our clients and ourselves.

7. It would establish an early warning system for managerial irregularities.

8. We would know full well who among the world of mutual funds is advancing the interests of clients and the financial planning profession.

9. Obviously, one vote is not going to dominate a board's decisions. Nonetheless, that one vote can speak to whether shareholders are being treated fairly.

Most of us know that a mutual fund is its own entity. Its board of directors governs it. This board is ultimately responsible for all its policies and strategic decisions. Indeed, the directors are the people who actually hire and fire the subadvisor-i.e. the mutual fund manager.

The mutual fund is not the subadvisor. The mutual fund is complete and whole unto itself. It hires the people who pull the triggers, but its shareholders own it, which is to say that our clients are the mutual fund's true owners, with all the theoretical rights and entitlements of an entity's shareholders. Mutual fund directors can fire managers for violating policies, poor performance or failure to operate within mandates. Mutual fund managers work for their shareholders-our clients-via direct accountability to the board of directors. Their boards of directors have fiduciary obligations to shareholders, but to the best of my knowledge, current directors have little, if any, relationship to our clients or most shareholders. This is not to suggest wrongdoing or rant against current selection mechanisms. But there have been several articles written about mutual fund boards and tendencies to inbreed and/or serve as rubber stamps for management decisions. Former Securities and Exchange Commission Chairman Arthur Levitt has expressed his fears about this problem. At the very least, mutual fund boards of directors do not appear to be bastions of shareholder advocacy. Board members generally are well-compensated for their service. Directors' fees can run well into the six digits.

Fiduciary advisors should be serving mutual funds at the director level. Who better? Yet, I am simply unaware of any personal financial advisor serving on the board of any mutual fund family. If such a person exists, I certainly have never heard of an instance in which he or she has shared observations with the larger community of fiduciary advisors.

Clearly, there are complex issues with any program to put fiduciary advisors on such boards. What about conflicts of interest? What about overt disruption of board processes or breaches of confidentiality? To whom are duties owed? What happens to compensation normally paid board members?

What other interests might be advanced in the process of serving these modest goals? Time to think outside of the box. Hence, a modest suggestion.

What if the Financial Planning Association (FPA) sponsored advisor/directors for service on the boards of mutual fund families? The FPA could establish a clearinghouse of individuals expressing an interest in such service and mutual fund families interested in using them. This clearinghouse could be an ancillary legal entity or part of an official program. It doesn't have to be the FPA. It could be a separate organization formed by the FPA, the American Institute of Certified Public Accountants, the National Association of Personal Financial Advisors and other interested groups. But for the sake of argument, I'll use the FPA because it is the largest financial planning association.

The FPA would develop a standard accountability report to be completed no less than annually by each advisor/director. Such an accountability report would respect trade secrets and other confidential information. That said, such reports would provide other advisors with information pertaining to some of the currently gray areas. Namely, "trade secrets" would not include sales negotiations, managerial dereliction, violations of mandates and other such information relating directly to the issues of shareholder transparency.

The FPA also could establish eligibility criteria for such individuals. Such criteria might include FPA membership, minimum credentials, minimum experience levels, past FPA service, amounts of assets under management, training, commitment to participate within FPA standards and commitment to represent both the profession and our clients as part and parcel of service.

The criteria for participating mutual fund families could include the existence of a special relationship with the FPA, and working in the past or present to promote the financial planning profession, financial literacy and the evolution of our profession as we attempt to meet 21st-century challenges. Funds also would need to show a special interest in working with the sorts of fiduciary advisors who are members of the FPA and a commitment to working with the FPA for accountability and standards of operation. They also would be entitled to offer directorships to anyone within the participation pool established by the FPA and would have to care about how they are regarded by the RIA market.

As far as compensation is concerned, the funds would pay FPA the full director's salary. The FPA, in turn, would pay a percentage of that salary to the individual advisor/director. No individual would be permitted service on more than one board at a time unless "retired" from practice.

To prevent conflicts of interest, advisor/directors would have a director's normal legal and loyalty obligations to the fund family. Term limits would be imposed upon advisor directors, with no advisor serving more than three to five years for a given organization. This would enable significant degrees of accountability and expertise to be developed and used without running into long-term loyalty conflicts.

To provide accountability, the advisor would need to be committed to full service as a director. This would include attending and preparing for meetings and maintaining all etiquette and procedural protocols. The advisor's duties also would include completion of accountability reports to the profession, including enforcement procedures regarding fund mandates and subadvisor contract negotiations, as well communication of shareholder and advisor issues.

The benefits of having advisors serve as fund directors include:

Sunshine. It would shed light on mutual fund governance.
Shareholder accountability. It is appropriate for an industry of this size to be more accountable to its shareholders than is currently the case.
Improved sharing between communities. We would understand them better. They, in turn, would understand us better.
Representation. Our clients would have advocates for their interests serving on their boards of directors.
Revenue. The professional associations would establish a nondues revenue source within the full context of its organizational mission.
Fairness. Mutual funds would be spending money already allocated to their director functions on individuals who have been contributing to their bottom lines without being directly paid for it.
Quality control. Merely participating in this program helps us identify the good guys with nothing to hide.

No doubt problems abound within this proposal or in my interpretation of the current system. But there also are problems with the status quo. Would we not all be better off with a governing mechanism that puts you or your colleagues at the pulse of an industry with vital importance to our clients and our profession? Would our clients not be better off if they had access to forewarning when things are changing or going bad, or having someone accountable to the profession when things go off track? Fund directors are supposed to represent shareholders. Who better than folks with fiduciary responsibilities for doing exactly that?

Downsides? I can hear the manufactured criticisms about conflicts of interest, fairness, intrusion into private business, yada yada. These can be overcome with just a bit of creativity. Mutual funds depend on our profession and our colleagues as their industry's lifeblood. It is right and fair that we make it mutual.

Richard B. Wagner is principal of Worthliving LLC in Denver.