CINCINNATI - Although the Investment Company Institute successfully stalled the Baker Bill last spring, Congress is likely to pass and the President Bush is likely to approve the third piece of legislation in the history of mutual funds, ICI President Matthew Fink told the Greater Cincinnati Mutual Funds Association.
Only once since the passage of the Investment Act of 1940, in 1970, has Congress changed the rules governing the industry, best left to the SEC, Fink said. And this bill, likely to be championed either by Congressmen Michael Oxley (R-Oh.) or Richard Baker (R-La.), could hit the President's desk as early as July.
The bill is expected to require funds to have a mandatory independent chairman, dollar-denominated fee disclosure and implement additional measures that will help curb abuses in the industry, Fink said. One member of the regional business association said the new laws would make entry into the business financially and legally prohibitive.
But if fund companies think that fighting Congress, state regulators and the growing number of shareholder activists is the right way to quell these requirements, they are wrong, Fink said.
"We are in heavy siege . . . in a battering experience," Fink said.
Fink recalled that over the summer, when the ICI "got the Baker Bill bottled up," he thanked Sen. Oxley for his cooperation, thinking to himself that nothing could revive the bill, "absent of a scandal. Well, we got the most royal scandal you could ever dream up."
The smartest way for the industry to restore its reputation from the fund scandal is to cooperate, particularly on the four measures that the ICI has recommended to the SEC, he said. These include the hard 4 p.m. close, the 2% redemption fee on trades within five days, better disclosure on soft dollars and the eventual total abolition of directed brokerage.
Fink peppered his speech to industry insiders with candid comments and jokes on the timing of his planned retirement at the end of the year, which included an interesting anecdote about a tennis match on his neighborhood courts during Memorial Day weekend. Coincidentally, playing on the court next to him was none other than New York Attorney General Eliot Spitzer.
Spitzer asked Fink, "How are the mutual funds doing?," to which Fink, unbeknownst to what Spitzer had up his sleeve, responded, "Fine."
Spitzer then replied, as Fink tells it: "Just you wait...Have a nice weekend."
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