Practice

PALM DESERT, Calif.-Modernizing fund rules, remembering fundamental basics of serving investors, keeping a watchful eye on globalization of the fund industry and facing risky practices head-on were key points of Andrew Donohue's keynote speech at the Investment Company Institute's "Mutual Funds and Investment Management Conference" here last week.

The April 16 deadline for fund companies and their intermediaries to ink information-sharing agreements in compliance with Rule 22c-2 has set off a flurry of negotiations and shifted attention to the next component of the rule: data analysis.

The comment period for the independent directors rule ended a month ago, and as the Securities and Exchange Commis-sion nears a vote on the measure, speculation is increasing that it will bend to the industry's fierce opposition to having fund boards run by independent chairmen. SEC Chairman Christopher Cox recently said that one alternative might be appointing a lead independent director, and industry insiders have indicated that the SEC might merely call having an independent chairman a "best practice."

Critics of 401(k) plans say they have failed the nation's workers because they don't equip them with financial advice. Although the Pension Protection Act prescribes giving guidance, it is vague on what it should constitute and, therefore, hasn't prompted many plan sponsors or administrators to provide such assistance. Without clear rules, they are afraid of fiduciary liability.

Critics of 401(k) plans say they have failed the nation's workers because they don't equip them with financial advice. Although the Pension Protection Act prescribes giving guidance, it is vague on what it should constitute and, therefore, hasn't prompted many plan sponsors or administrators to provide such assistance. Without clear rules, they are afraid of fiduciary liability.

The distributor and investment advisor for the Franklin Templeton family of mutual funds has agreed to pay $20 million to settle charges that they made ill use of brokerage commissions.

Fidelity Investments is gearing up for a fight with federal regulators now questioning a business relationship between a pair of siblings who handle a fraction of the fund giant's trading business. Fidelity trader David K. Donovan and his younger brother, Peter Donovan, an employee of Bank of American Securities, are under investigation for forging an improper business relationship, attorneys close to the case told The Boston Globe last week.

Say it ain't so, Fido.

The largest scandal in the mutual fund industry's 80-year history has prompted regulators to revamp how funds conduct business by implementing a series of reforms. Dozens of firms have been sued and accused of fraud, a handful of executives are facing criminal charges and investors have realized how little they really know about how their retirement dollars are being invested.

First Command Financial Services, a leading seller of financial products to military personnel, agreed last Wednesday to pay $12 million to settle allegations that it used shady sales practices to pitch mutual funds to thousands of enlisted men and women over the last five years.