Compliance March 2, 2003

Mutual Fund Practices, Fees "Front and Center"

February 3, 2003 (PLANSPONSOR.com) - Plan sponsors could gain some additional insights, and perhaps some help in managing mutual fund expenses, from a Congressional committee review of mutual fund practices.
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Mutual fund fees and practices will be “front and center” on the agenda of the House Financial Services Committee this week, according to Dow Jones, quoting FSC spokeswoman Peggy Peterson.  

House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) announced last week that the new Committee will hold its first meeting of the 108th Congress this week to ratify subcommittee chairs and memberships, as well as adopt committee rules and an oversight plan.

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The Committee’s proposed oversight plan agenda includes examining “current trends” in mutual fund fees, including both the adequacy of that disclosure and its efficacy in promoting fee-based competition.   The proposed agenda notes that the review will also look at the benefits of providing dollar-specific fee information to investors on trade confirmations and/or account statements.

Also on the proposed agenda:

  • The transparency of portfolio transaction expenses, the potential benefit of including those in the funds’ expense ratios, and what impact increased transparency might have on so-called “churning” by portfolio managers
  • The role of 12b-1 marketing fees – whether investors are benefiting from economies of scale as a result of 12b-1 plans, and if changes in Rule 12b-1 are necessary
  • Revenue sharing payments made by mutual funds to brokerage firms, the transparency and potential conflicts of interest in such arrangements
  • Soft-dollar practices – both the regulation and impact of these practices, as well as their impact on investors

In addition, the potential use of mutual funds in money laundering and the role funds played in creating the “so-called technology bubble, with a focus on the hundreds of technology and Internet funds established in the 1990s” are also on the Committee’s agenda for consideration.

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