WASHINGTON -- In a far departure from the self-congratulatory back-slapping that went on at last year's Investment Company Institute General Membership Meeting, the largest mutual fund industry gathering of 2004 featured a more humble tone from the top.

As the organization's constituents flocked to sessions designed to hammer home the message of fiduciary responsibility, ICI leaders spoke more frankly than before about past transgressions in the industry and the challenges mutual funds now face.

"Collectively, we have no one to blame but ourselves for triggering the notoriety we received and the criticism we heard," Paul Haaga, ICI chairman and executive vice president of Capital Research and Management Co., told a roomful of mutual fund executives.

"There wasn't one collective mood among attendees, but I think people have gotten a wake-up call," Haaga told Money Management Executive in a later interview. "I think they're contrite, remorseful, appalled, shocked, etc., by what went on, but they're also looking forward. If you are only contrite, you are not doing your job."

One attendee who wished to remain anonymous described the mood of the meeting as "subdued at best," while others described the tone as hushed. "I think the mood was quiet. I don't know if I would go as far as to use the word somber, but the conference was on the quiet side," said Don Cassidy, a senior analyst with research firm Lipper. "Given the number of people at the conference, the traffic in the exhibit hall seemed on the light side." Cassidy said he got the feeling that a lot of the attendees were spending their free time in more meaningful ways, having private conversations in the hallways or lobby instead of strolling the exhibit hall and picking up free souvenirs, as they have done in the past.

Approximately 1,425 attended the conference this year, up from about 1,200 a year ago, and in line with 2002, according to Jaime Doyle, a spokesman for the ICI. But, in many ways, the most notable difference between this year and last wasn't who came to the meeting, but rather who didn't show up or who stayed behind the scenes.

"I saw very few of the folks from firms involved in the scandal," Cassidy said, a sentiment echoed by others as well. "There were a couple of very visible exceptions," he said, noting Richard Davies, EVP of AllianceBernstein and Ivy McLemore, senior vice president and director of corporate communications at AIM Investments, who both spoke on a panel about communicating with shareholders. However, despite representatives from tainted firms being listed on the attendee list, many kept a low profile and were hardly seen.

Standing Room Only

"There was really good session attendance," noted Ann Becker, chairman of Thompson Becker International, a marketing firm based in North Attleboro, Mass. "I think people are really looking for leadership, and it is really a critical time for the new head of the ICI to make it clear that he is going to uphold the integrity of the business and be the sentinel for the integrity of the industry."

Incoming ICI President Paul Stevens addressed the membership, and Matt Fink, the man he is replacing, was interviewed in front of the audience in the International Ballroom by CNBC's Tyler Mathisen (see related story, page one). Mathisen took the retiring Fink to task a number of times, with Fink appearing more earnest and forthcoming than in the past. He attributed the scandal to "simple greed, arrogance and a weakened, understaffed SEC," while noting a "cultural erosion" in the fund industry.

"I thought it was very important and very leader-like that Matt did this very candid interview," Becker said. "Matt helped to set a path for the industry from his sage standpoint about what has to be addressed and how it has to be addressed and the urgency of it. It serves as a guidepost for the industry itself."

Cassidy said there was a lot of introspection going on at the meeting, but that "the way the scandal was addressed was indirect, without a lot of specifics." The meeting did not tackle 12b-1 fees, pay-to-play practices, hedge funds, or the simplification of prospectuses and other items of regulatory significance. Others felt the industry passed up on a good opportunity to educate its membership on these subjects, but Cassidy said the ICI is in a "very delicate" spot with having to balance the interests of all its constituents.

"Nobody sat around the table and said, Let's list all the things we don't want to talk about,'" Haaga said. "We listed the things we did want to talk about." Historically, the General Membership Meeting has always been thematic, with other ICI meetings throughout the year set up to more specifically address topics in depth, Haaga said.

"I hope the point that came across to people is that we need to look back and make sure that we not only learned the lessons, but that we retained those lessons," he said. In addition to fixing the market-timing and trading problems that have tainted the $7.5 trillion industry, it is imperative to understand why the industry didn't detect the post-4 p.m. trading abuses, he added.

"The broader lesson is that when systems and business practices change, you have to go back and revisit the rules that you thought were easily monitored because they may not be as easily monitored," Haaga said. "When we got all of our purchases through the mail, the 4 p.m. close was easy to monitor. When we started getting them electronically through intermediaries, it wasn't as easy to monitor, and, frankly, we didn't collectively revisit our compliance systems as thoroughly as we should have. You want to look backwards, figure out what went wrong and [learn from] those lessons as much as you can."

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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