Who's watching out for you? It is certainly not the fund's board of directors. Most rubber-stamp management's recommendations, and few bother to negotiate lower fees. The largest mutual funds, in fact, pay money-management advisory fees that are more than twice those paid by pension funds.

While many governance experts recommend corporate directors sit on no more than five boards, fund directors typically sit on dozens. By law, each fund must have a board. Most fund families use the same set of directors for every fund in their stable. It's more efficient, they reason, because funds operate similarly. Some 277 of Fidelity Investments' funds, for example, share a common board.

The SEC requires that a majority of those busy directors be independent. But many so-called independent fund directors have ties to the fund managers. The legal definition of 'independence' is squishy: The statute lets relatives of fund managers serve as independent directors as long as they aren't members of the immediate family. Former employees of the fund's investment adviser may also serve as independent directors just two years after retirement. It's a nice perk: In 2002, the median total pay for directors at the big fund groups was $113,000, according to consultants Management Practice Inc.

It is little surprise that directors rarely exert their authority to challenge the fund's adviser. Many routinely approve management contracts at fees that are twice what pension funds pay for stock-picking services. And they are slow to insist that investment advisers cut loose portfolio managers with lousy records. It took the boards of Putnam Vista Fund and Putnam's OTC & Emerging Growth Fund three years to replace managers in each fund, after losses that averaged 24% and 44% a year through 2002, respectively, ranking both at the bottom of their peer group. Fund governance is 'fundamentally broken,' says Gary Gensler, co-author of The Great Mutual Fund Trap . 'Directors too often think of the fund company -- not the real investors in the funds -- as their client.'