Amid the furor over the mutual fund trading scandal, three fund industry experts, Mercer Bullard, Jack Bogle and Don Phillips, told Morningstar that the industry needs to embrace several reforms to fix its inherent flaws.

The trio agreed that better disclosure would significantly help inform investors, who are often given vital information such as the selling broker's compensation, the fund's operating costs and potential conflicts of interests that might exist, after they have purchased a fund.

Bullard, head of shareholder advocacy group Fund Democracy and a former Securities and Exchange Commission staffer, said, for example, that a point-of-sale document would allow investors to consider that information before making an investment decision.

Bogle and Bullard both said that transaction costs need to be disclosed more thoroughly. Even though the SEC is planning to require commission cost disclosure, Bullard said that spread costs should also be included in the disclosure statement given that commission costs only make up a small fraction of trading costs.

Bogle, the founder of Vanguard, said, "Investors should receive an annual cost statement in dollars - not percentages." He added that 12b-1 fees, or fees that are used to cover marketing and distribution expenses, should be eliminated so that commission costs would be unbundled. Bogle and Bullard also agreed that better directors were needed, and that they should be held more accountable to shareholders.

Phillips, managing director of Morningstar, however expressed satisfaction with the regulatory agenda the SEC has pursued in the last 18 months. But he called for further efforts to ensure that mutual funds are protected from being over-regulated and left vulnerable to frivolous litigation.

"I'd like to see funds get some relief from class-action lawsuits, to have fund regulation streamlined, and to have fund taxes linked to shareholder purchases and sales, not to the manager's activity," he said. He also said that he'd like to see greater transparency applied to mutual fund alternatives like separate accounts and hedge funds.

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