Under Fire

For decades, we've been sold the notion that long-term investing is the best way to build a nest egg, and that mutual funds are the best vehicle for long-term investing. The fact that funds have been largely scandal-free has helped to cement that perception. The past year, though, has sorely tested that image.

First, securities regulators honed in on Morgan Stanley for using incentives to induce its brokers to sell the company's own mutual funds rather than giving impartial advice to clients. Several brokerages were also nailed by regulators for peddling more lucrative (for the broker) mutual fund Class B shares rather than more affordable (for the investor) Class A shares. And then last fall, we found out some mutual funds were letting the big guys eat into our returns through market timing and late trading schemes that benefited them.