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Senate Banking Considers Comprehensive Mutual Fund Reforms

Monday, March 22, 2004
Sally Greenberg or Luis Figueroa, (202) 462-6262

Senate Banking Considers Comprehensive Mutual Fund Reforms
Measures include more SEC authority; consumer-friendly disclosure and information

(Washington, DC) – A host of pro-consumer reforms for the troubled mutual fund industry backed by Consumers Union – from granting the Securities and Exchange Commission authority to thoroughly track transactions to making mutual fund fee disclosures clear and consumer-friendly – will be considered at 10 a.m. Tuesday by the Senate Banking Committee.
“Mutual fund investors will never get a fair shake unless the SEC uses all its authority to attack excessive fees and investors get accurate, understandable, comparable information to impose market discipline,” said Sally Greenberg, regulatory counsel for Consumers Union.
“Mutual funds hold people’s life savings, retirement accounts and college funds. Congressional action is necessary to restore investor trust and ensure investors will be protected from further abuses,” Greenberg added.
Among those testifying for the proposed reforms will be securities experts Mercer Bullard and Barbara Roper. Bullard, founder of Democracy Fund, teaches courses on securities and financial institutions regulation at the University of Mississippi School of Law. He worked at the SEC from 1996 to January 2000 and was assistant chief counsel in the SEC’s Division of Investment Management. Roper is director of investment protection for the Consumer Federation of America.
Consumers Union joins Bullard and Roper in calling for a host of pro-investor reforms to protect investors including:
· Granting the SEC the additional oversight authority to provide end-to-end tracking of mutual fund transactions.
· Improving oversight of mutual funds by examining the need for an independent regulatory organization to set and enforce standards for mutual fund boards; supporting and expanding SEC efforts to enhance its regulatory operations; and reviewing the SEC’s reliance on settlements without admissions of wrong-doing.
· Enhancing the independence and effectiveness of mutual fund boards. This would include requiring that the board chairman and three-quarters of board members be independent; independent directors stand for election; and establishing a fiduciary duty for board members with respect to all fees.
· Improving sales practices, including requiring delivery of a fund profile prior to the sale, and requiring disclosure of brokers’ compensation, including a point-of-sale cost estimates.
· Improving mutual fund fee disclosures by requiring portfolio transaction costs be included in the mutual fund expense ratio; reforming 12b-1 fees; requiring clear fee-comparison disclosures in actual dollars; requiring individualized disclosure of actual fund costs; and banning use of soft dollars.