I’m a bit rough on the mutual fund industry, but this week, it seems appropriate to acknowledge one positive.

Mutual funds have democratized investments. Thank you.

Before the rise of mutual funds, if you wanted to invest in the stock market, you had to either be a big player or be prepared to get fleeced. When the market crashed in 1929 less than 1% of the public owned a share of stock. The first mutual fund began operations in 1928. It took a while for these funds to catch on, but now just about anyone with a 401(k), an IRA, or a 529 plan owns stocks indirectly through mutual funds.

Mutual funds brought investing to the people. That’s a good thing. They’ve allowed families to build wealth, educate their children, and retire securely, all without having to pay a personal money manager.

That said, the democratization of investing has at least one of the same issues as democratization of government. It’s summed up in a word that’s being used in Washington and on Wall Street a lot these days – transparency.

Just like in government, I think it’s only fair to know who is being given favors, and why. Why don’t mutual funds clearly identify their true costs to investors? Why do funds play favorites – putting big investors ahead of smaller ones? Why aren’t funds more forthcoming about how much of their managers’ money is invested in the fund? Why do investors have to pay big fees for closet indexers? And why are share classes so confusing?

Again, my hat is off to the mutual fund industry for popularizing stock ownership, but it has a long way to go. A lack of transparency is at least in part starting to cause investors to turn away. Is it really too much to let investors know at any time where exactly their money is invested, and why? And if not, what does that say about that industry’s attitude towards their customers?

I don’t believe Spoke Fund® firms have solved every ill of the mutual fund industry. But I do think there is a lot to be said for a transparent firm where investors know what the portfolio manager holds, why he holds it, how much it will cost for them to invest exactly the same way – and to have the assurance that each and every investor will be treated fairly, too.

I think that’s the least that investors should expect. Don’t you?

Happy Thanksgiving.