SEC Favors Increased Disclosure for Mutual Funds

August 18, 2004 ( - In the latest step meant to increase transparency in the industry following last September's scandal, the Security and Exchange Commission (SEC) has voted unanimously to require mutual funds to disclose the range of holdings in their fund as well as the way in which fund managers are paid.

“Portfolio managers hold a privileged position,” SEC Commissioner Roel Campos was quoted as saying. “With privilege comes responsibility. Today’s rules are designed to ensure that portfolio managers are fulfilling those responsibilities.”

The new rules voted on by the SEC also mandate that mutual fund companies release the names of up to five team members responsible for stock allocation within the fund. In the past, only the name of the fund manager has been released in a company’s Prospectus.

The SEC also voted on new conflict-of-interest rules with regards to mutual fund managers. Unlike previously, the SEC will now demand the disclosure of all funds managed by fund managers, including hedge funds. With this new rule, mutual funds would have to declare potential conflicts of interest flowing from multiple-fund handling by fund managers.

The SEC, however, did not require that mutual funds release compensation figures for management, something that had been called for from investment advocacy groups such as Vanguard Group.

In response to those who feel that the disclosure requirements implemented since last September’s scandal are overbearing, SEC Commissioner Harvey Goldschmid stated that the final rules “are a very nice balance.” Regulators, according to the Dow Jones Newswire, asserted that they sought to balance privacy concerns with the need for increased disclosure in the wake of the scandal.

– Kip McDaniel