A Profitable Century of Prudence
continued from page 19
of the board of the bank. He instituted a
program where students would work part
time at the bank. “My father, a blacksmith,
was also an early depositor at the bank,”
says Ross. “I started in 1949 in bookkeeping. We handled a lot of paper checks. I also
ran a lot of errands, including hand delivering statements to customers.”
Echoing the familiar theme of mutual
support, Ross recalls that he heard first-
hand from people in the community and
at the bank that they all got through the
Great Depression together. “If it had not
been for the bank supporting the community, the whole area would have been
devastated. That reciprocality continues
to this day. We have been able to support
each other even during the current fiscal
crisis in the state.”
Gregory DL Morris is an independent
business journalist based in New York.
He is principal and editorial director
of Enterprise & Industry Historical
Research, and is an active member of
the Museum’s editorial board. He can be
contacted at gdlm@enterpriseandindustry.com.
The Most Notable Figures in Fund History
continued from page 59
Under Ned Johnson’s leadership, Fidelity
has become one of the largest fund families
in the nation and has been a constant innovator, both in the fund industry and financial services generally. In the mutual fund
area, Fidelity led the industry’s movement
from distribution through broker-dealers
to direct marketing; was one of the first
fund families to enter the 401(k) market;
and introduced a host of new products and
services including check-writing on money
market funds, tax-exempt money funds
and sector funds that utilize hourly pricing.
In the broader world of financial services,
Fidelity introduced discount brokerage services and walk-in investor centers.
Fidelity has repeatedly transformed
itself — from a traditional load fund group
distributing fund shares through brokerdealers, to a no-load giant, to a broader
service firm. Fidelity has been a training
ground for all types of fund personnel,
and the company has experts in every area
of fund activity. The mutual fund industry
is filled with executives who received their
start and their training under Ned Johnson at Fidelity.
For these reasons, he is arguably the most
important figure in modern fund history.
Paul G. Haaga, Jr.,
John J. Brennan, Terry K. Glenn
and James S. Riepe
Defending the
Mutual Fund Industry
From the time of the Investment Company Act in 1940, fund managers generally
acquitted themselves well in serving fund
shareholders. However, in 2003, due to
the efforts of New York Attorney General Elliot Spitzer, it came to light that a
number of fund groups had entered into
arrangements with speculators, permitting them to trade fund shares in violation
of stated policies. Speculators’ gains came
at the expense of other shareholders.
These revelations could not have come
at a worse time for the fund industry.
Many investors had lost substantial sums
in the 2000–2003 bear market and were
angry. The bear market had been followed
by revelations of major corporate and
accounting scandals, resulting in enactment of the Sarbanes-Oxley Act. Many
saw mutual funds as the next area in need
of reform. The Securities and Exchange
Commission, the regulator of the fund
industry, had been weakened by Spitzer’s
upstaging of the agency in connection
with Wall Street research analysts. He
now blamed the SEC for not detecting and
thwarting the fund trading abuses.
Three Congressional committees held
hearings on the abuses. Industry critics
testified in favor of extreme measures,
such as requiring fund boards to put
advisory contracts out to bid, requiring
fund contracts to be cost-plus, requiring funds to internalize management
when they reach a certain size, prohibiting funds from imposing new fees (and
thus introducing new services) without prior SEC approval and prohibiting
funds from advertising their past performance. Adoption of these measures
would have homogenized, commoditized
and dumbed down funds, to the great
72 Financial History | Spring/Summer 2011 | www.MoAF.org
detriment of fund shareholders. Nevertheless, the press predicted that Congress
would enact tough legislation.
Fortunately, the chairman of the Investment Company Institute was Paul Haaga,
who was experienced, well-respected
and tough. He had attended Princeton,
obtained business and law degrees from
the University of Pennsylvania and worked
at the SEC and a law firm before joining
the Capital Group in 1985.
Haaga led the industry in calling for
strict enforcement of the law including
criminal penaltie