A new research report indicates that many of the proposed changes to the troubled mutual fund industry would do more harm than good, mostly because of how much money implementing those changes would cost.
The TowerGroup conducted research that identified the five major causes of the fund scandal, and suggested alternatives to some of the reform ideas that have been kicked around. The five problems are nothing new or groundbreaking: Failure to charge breakpoints, late trades, timing the market, conflicts of interest by brokers and investor trust.
But approaches different than recent proposals would be more beneficial to the industry, the report said. It is obvious that changes are needed, the report concedes, but not the ones that have been introduced.
"By the Securities and Exchange Commission's own estimates, the price tag for many proposed mandates would further increase the costs of distributing and servicing mutual funds," said Gavin Little-Gill, the report author. "The ultimate result will be increased costs for mutual fund shareholders and a wholesale review of accounts by fund companies, leading to a re-segmentation of client sales and service models by profitability."
The best changes, according to Little-Gills research, would be ones that "will address the issues facing the fund industry without causing a wholesale shift in the distribution and servicing costs of mutual funds."