Mutual Fund Integrity Bill Toned Down

After postponing a markup session for the mutual fund transparency bill earlier this month, the House Financial Services Committee has approved H.R. 2420, but with several key changes that take a lot of the punch out of the original proposal.

The Mutual Funds Integrity and Fee Transparency Act of 2003, designed to bring greater transparency and corporate governance regulations to the $6.5 trillion mutual fund industry, has been Rep. Richard Baker’s (R-La.) darling as he has tried to bring about reform in the sector. Although there have been no major scandals in the mutual fund industry, investor confidence has been severely shaken in the wake of the Enron and Tyco fiascos, and Baker has been pushing for increased legislation in this industry.

The Investment Company Institute, the trade organization for the mutual fund industry, had two of its biggest areas of concern with the bill resolved as lawmakers adhered the group’s suggestions.

Instead of providing individualized statements to investors detailing exact dollar amounts they are paying in fees, funds would only now be required to provide fee amounts paid on a basis of a hypothetical $1,000 investment. ICI had suggested such a change.

The original version of the bill also required that the chairman of a fund’s board of directors be independent. However, that provision was deleted and replaced with an amendment giving boards of directors the option to elect an independent chairman.

The bill would also require new recordkeeping of soft dollar transactions, which would help shed some light on possible conflicts of interests. It would also mandate the notification in brokerage account statements that fees have been deducted, as well as require the disclosure of portfolio turnover rates so that investors can easily compare the rates to those of other funds.

Critics of the fund industry are sure to be unsatisfied with the amendments, as many of the changes lessen the measures originally proposed by Baker’s bill (see MME 6/30/03).

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