The chairman and three-quarters of the trustees of mutual fund boards would have to be independent, if sweeping SEC fund reforms and a code of ethics are passed.

A second watershed proposal from the SEC yesterday would require brokers who are rewarded with revenue-sharing or directed brokerage premiums for selling a particular fund or fund brand, to inform their clients of such agreements verbally over the telephone.

Although the commissioners unanimously approved the reforms – with SEC Commissioner Harvey Goldschmid saying that "these independent watchdogs must bark and, where appropriate, they must bite" – industry executives and leading politicians had mixed reactions.

Brokers have never been required to disclose such arrangements at the point of sale, and industry insiders tell MME they would never have expected such extensive requirements from the SEC.

Democratic presidential hopeful Sen. Joseph Lieberman of Connecticut called the revenue-sharing disclosure "too timid."

The Investment Company Institute issued a statement labeling the SEC proposals "bold" and warning that they might not have their intended effect.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.