As the industry lacked an official trade association, MFS’ then Chairman Merrill Griswold decided to be proactive, take the long view, lead with common sense and prioritize collaboration. Timing was everything. The clouds of World War II hovered over Europe, and Griswold saw the ideal moment to prove to Congress, as well as millions of small shareholders, that everyone had more to gain than fear from a properly regulated mutual fund industry. A healthy investment industry made for a healthy nation.
Griswold gathered support for the creation of a “task force” made up of 12 industry executives,8 who worked together to draft an acceptable compromise.9 The task force wasted no time in presenting its own set of concrete suggestions to Congress, highlighting helpful regulations and questioning inequitable ones.10 Legislators were shocked that the industry was trying to help, rather than thwart, its efforts.
The ethical guidelines MFS established for MIT became a template for the entire industry.11 By August 1940, this unexpected collaboration led to the drafting and passage of the compromise legislation now known as the Investment Company Act of 1940.12,13
Working with industry professionals and government officials, MFS made sure the bill protected investors, promoted a responsible industry and allowed widespread access to mutual funds. In fact, MFS noted that the 1940 Act called for “very few changes in the business methods of our Company.” And subsequent reports suggested that MFS’ bylaws were so similar “that we had to change only a few commas.”14
The 1940 Act covered governance, share redemptions, sales and much more and is often referred to as the “constitution” of the mutual fund industry, holding immense significance as it continues to act as a strong but fair regulatory framework today.15,16 As a result of the events of 1940, MFS not only secured a prominent place in financial history but also leveraged its client-first ethos to help shape one of the most important regulatory frameworks ever drafted.
Please note: Not all of the funds included in this material may be available for sale in your country.
Endnotes
1Fink, M. (2011).
The Rise of Mutual Funds: An Insider’s View. Oxford University Press.
2 Allen, D. (2015).
Investment Management in Boston: A History. University of Massachusetts Press.
3 Silberman, H. (1974).
50 Years of Trust: Massachusetts Investors Trust, 1924–1974. Massachusetts Financial Services, Inc.
4 Fink, M. (2005). The Revenue Act of 1936: The Most Important Event in the History of the Mutual Fund Industry.
Financial History.
5 Gremillion, L. (2005).
Mutual Fund Industry Handbook: A Comprehensive Guide for Investment Professionals. The National Investment Company Service Association (NICSA) and Acadient Incorporated. John Wiley & Sons.
6 Allen, D. (2015).
Investment Management in Boston: A History. University of Massachusetts Press. Page 145.
7 Allen, page 145.
8 Grow, N. (1977).
The “Boston-type open-end fund”: Development of a national financial institution 1924-1940. Harvard University. (Unpublished doctoral dissertation or master’s thesis).
9 Grow, page 510.
10 Grow, page 516; Silberman, page 17.
11 Silberman, page 5.
12 Grow, page 516.
13 Fink, page 38.
14 Fink, page 34; WALL STREET: The Prudent Man. (1959)
Time Magazine.
http://content.time.com/time/subscriber/article/0,33009,811169-1,00.html.
15 Roye, P. (2001). Speech by SEC Staff: The Exciting World of Investment Company Regulation.
https://www.sec.gov/news/speech/spch500.htm.
16 Rottersman, M. & Zweig, J. (1994). An Early History of Mutual Funds. Friends of Financial History. Museum of American Financial History. Vol. 51. Pages 12–20.