U.S. regulators believe not enough information on what incentives brokers get to sell certain mutual fund products are disclosed, Reuters reports. "We are engaged in a fact-finding inquiry into how broker/dealers distribute mutual fund shares," said Paul Roye, director of the. Securities and Exchange Commission's Division of Investment Management. This comes at a time when the mutual fund industry faces increasing regulation scrutiny into fees, performance and distribution practices after a three-year bear market.

Seeking broader disclosure from the mutual fund industry, the SEC wants to know whether brokers push mutual fund products on customers because of compensation they receive and whether the compensation is disclosed. Asked whether revenue-sharing agreements represent a conflict of interest, SEC Chairman William Donaldson said in a hearing on hedge funds last Thursday: "At the very least, it's a piece of information a prospective buyer has a right to know and that's what we're after."

But fund industry leaders defended the practice, saying revenue-sharing is fine as long as it is disclosed in a fund’s total cost, CBS Marketwatch.com reports. "I don't think there's anything wrong with it," said Matthew Fink, president of the Investment Company Institute. Kenneth Anderson, president of ABN-AMRO Funds, said he believed that fund holders don't care so much about having each expense itemized but do want to see their overall management fee.

But last March, Congressman Richard Baker, R-La., chairman of the House Subcommittee on Capital Markets, said revenue sharing was the fund industry's "dirty little secret" and had become a major expense for fund companies – as much as $2 billion in 2000.

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