The Investment Company Institute purports to go to bat for shareholders, but collects its fees from fund companies. Oxymoron or reality?

An ICI executive's off-the-cuff remark to a reporter about who the powerful Washington trade lobby actually represents--fund companies, not investors--has set a debate in motion, with the SEC now in tow.

The day after an Aug. 18 Reuters report broke the story, the news organization obtained an internal ICI memo backing up the assertion, in which ICI President Paul Schott Stevens assured members: "We are not an organization whose membership includes investors or shareholders as such, and, in this sense, we do not and cannot claim to represent them. The distinction is an important one, if somewhat too subtle to be captured accurately in the press."

Added to the ICI's woes now is an investigation by the Securities and Exchange Commission into whether the trade organization's fee structure needs revisiting. Roughly half of the ICI's annual $29.5 million in annual dues are paid directly out of fund companies' revenues, the other half by investors through fund management fees.

"The ICI's statements regarding its role as, essentially, the spokesman for fund management raises issues that involved the allocation of ICI dues between fund management and their funds," Meyer Eisenberg, acting director of the SEC's division of investment management, told Forbes.

"Use of fund assets to pay ICI dues is a matter within the business judgment of fund directors," Eisenberg continued. "As with any significant expense, directors should carefully consider and weigh benefits received from using fund assets in this way."

But if the SEC's and the courts' earlier scrutiny of ICI's fee structure are any indication, the current brouhaha may come to nothing. Five years ago, the U.S. District Court in Washington dismissed a lawsuit by two investors over this issue, saying the legal standing to bring the suit did not exist.

Although Schott Stevens was unavailable for further comment on his remarks for Forbes, ICI spokesman John Collins told the magazine: "The focus of confusion is that, since the ICI does not represent shareholders, we must somehow be contrary to their interests. But at the ICI, we believe fund management companies' interests must be aligned with those of shareholders."

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