A Chilling Effect?

One of the main arguments against the newfound vigilance of the SEC presented by many smaller RIAs is that the rules are more appropriate for those larger investment advisors who can afford the added time and expense of compliance. But what if those regulations have a chilling effect on the very spirit of entrepreneurship espoused by small RIAs, many of whom wind up running their own mutual funds? That’s Ron Muhlenkamp’s concern over the SEC’s new regulations. Other advisors–especially those who started by advising individual clients and grew into larger money managers–express similar concerns.

Muhlenkamp has been in the investment advisory business since 1978, and remains CEO of his fee-only firm, Muhlenkamp & Company, Inc., which is based in Wexford, Pennsylvania. Muhlenkamp says he decided to raise his minimum account size from $200,000 to $300,000 in the late 1980s to more efficiently diversify his clients’ portfolios. In order to accommodate clients and prospective clients who didn’t have $300,000 to invest, however, in 1988 he started a no-load mutual fund, the Muhlenkamp Fund (MUHLX), which as of May 17, 2004, had $1.27 billion in assets and a 15.24% average annualized return over the past 10 years, according to Standard & Poor’s. The fund posted that enviable performance and growth while levying total expenses of 1.17% (compared to its peers’ average expense ratio of 1.40%), all with a minimum investment of $1,500.