Many mutual fund industry analysts are skeptical that the Securities and Exchange Commission will take final action on any of its outstanding proposals this year, but if it does, the summary prospectus and XBRL tagging are likely to top the list, with a proposal on changes to 12b-1 fees to follow in 2009.

"I don't have a lot of high hopes for anything being adopted before the end of the year," said Geoffrey Bobroff, president of the Greenwich, R.I.-based mutual fund advisory firm Bobroff Consulting.

"I'm not sure the industry needs a lot of supervision right now," he said. "The industry has had numerous proposals and rule adoptions in the last year, and it needs a period of digestion," Bobroff said.

Adopting the short-form prospectus is almost a foregone conclusion, said Todd Cipperman, principal and founder of the mutual fund law firm Cipperman & Company.

"XBRL ties in with the summary prospectus," he said, adding that he thinks the two are one and the same initiative. "I think this was the master plan all along. Chairman [Christopher] Cox loves XBRL. He has been too definitive for it not to happen."

The SEC seems likely to adopt the short-form prospectus by the end of the year, agreed Mercer Bullard, founder and president of Fund Democracy.

"In other areas, they will continue to delay final action, notably on the point-of-sale disclosure, which has been pending for years," Bullard said. "I think that by the end of the year, we will have a proposal for 12b-1 fees, but it will be unlikely they will adopt it this year."

"A proposal on 12b-1 is also going to be costly," Bobroff said. "I think the industry needs a breather."

Bobroff said Rule 22c-2, regarding mutual fund redemption fees and omnibus accounts, cost the industry and shareholders a lot of money, however, he wasn't sure it accomplished much.

As far as the impact of the subprime fallout on the mutual fund industry, industry insiders believe the SEC will forge ahead with its investigations-including one announced last week where the Commission will examine firms that unloaded Bear Stearns stock in the firm's final weeks and days-but the mutual fund industry will continue to lack any serious, direct scrutiny.

As far as other mutual fund issues are concerned, Bullard said the industry hasn't received much guidance from the SEC in recent months.

"The SEC continues to fail to address outstanding issues in the mutual fund industry," Bullard said, adding that in many cases, "the SEC seems to have no idea what the law is."

As an example, he said former California Attorney General Bill Lockyer sued Capital Research and American Funds distributors in 2005 for inadequate disclosure of revenue-sharing agreements. The SEC dropped the ball on that one, Bullard said, but got lucky when the case was dropped after new California Attorney General Edmund Brown, Jr. took office this year.

No one made any predictions or comments on the now-dormant issue of independent chairmen of mutual fund boards, a proposal the U.S. Chamber of Commerce championed for the industry, as it would have greatly upset boards' balance of power.

Discovering the Commission's true priorities is anyone's guess, but managers and investors can get some insight by listening to the speeches of SEC staff and Commissioners.

"A lot of remarks on the SEC speech circuit are carefully calculated," said Jim Volk, chief compliance officer at SEI Investment Manager Services, speaking at The National Investment Company Service Association's recent East Coast Regional Meeting in Philadelphia. "They say some things over and over again."

SEC spokesman John Heine referred all inquiries about the Commission's key issues regarding the fund industry to the SEC website.

"I don't know anybody on the staff who is eager to go beyond what the Chairman said," Heine said, referring to recent testimonials and speeches.

In an April 16 testimony before the U.S. House of Representatives Appropriations Committee, Chairman Cox said the SEC would continue to oversee securities firms and credit ratings agencies and step up enforcement of violators when necessary.

Cox also said the SEC has considered allowing U.S. companies to comply with International Financial Reporting Standards instead of the U.S.'s Generally Accepted Accounting Principles (GAAP).

"The world's regulatory and enforcement authorities are finding that we have to collaborate if we hope to protect our own investors," Cox said. "The SEC is working closely with our international counterparts to monitor the markets and pursue fraudsters wherever they may run. We are also exploring the idea of mutual recognition among a very few high-standards countries with robust regulatory and enforcement regimes."

Currently, there are two vacancies on the five-member SEC after Democrats Roel Campos and Annette Nazareth left recently, and Commissioner Paul Atkins' term expires June 15 (see "Week in Review," page 4). Atkins has said he will stay on until his replacement is named. Cox's term expires in 2009, but whether he remains Chairman is up to the current U.S. president. The SEC could have an entirely different outlook, depending on who wins the White House.

On Tuesday, June 3, the Senate Banking Committee will consider three nominations to the Commission. The nominees are Atlanta attorney Luis Aguilar and Financial Industry Regulatory Authority Senior Executive Vice President Elisse Walter, both Democrats, and Washington University Professor Troy Paredes, a Republican.

The Senate is expected to approve all three nominees simultaneously in an "all or none" approach.

If approved, Aguilar's term would end in 2010, Walter's term would end in 2012 and Paredes' term would end in 2013.

Speculating that little, if any, mutual fund regulations are likely to be approved before year-end, Bobroff said it could be awkward to have a regulation authorized by only two Commissioners, although it has been done before.

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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