Compliance January 12, 2004

SEC to Consider Independent Director, Broker Rule Changes

January 12, 2004 (PLANSPONSOR.com) - The US Securities and Exchange Commission (SEC) continues to take a whack at potential contributing factors to problems plaguing the mutual fund industry with efforts to shore up the role of independent directors and other moves.

Reported by

Fred Schneyer

>At its Wednesday meeting, the SEC is set to take up a raft of rule changes to fund boards – primarily by giving independent directors more clout, Knight Ridder reported. Funds would have to be chaired by a director without ties to management and 75% of board members would have to be independent, under the new rules.

>The regulatory agency also plans new mandates forcing brokers to reveal to investors any hidden sales charges, as well as incentives brokers may get to push selected mutual funds. The proposal is part of a broader regulatory attempt to crack down on brokers who direct clients to invest in funds more profitable to the broker, whether or not doing so in the client’s interest.

>The SEC board proposal is expected to give independent directors the authority to hire their own staff, so they can keep closer tabs on fund companies. The commission already has adopted a rule requiring that funds hire independent compliance officers who report directly to the board. Industry watchdogs also hope that boards will become more aggressive monitors of their funds.

>Some would like to see boards have the ability to fire investment managers – a Putnam or an Invesco, for example – and replace them with other companies.

The fund industry has been beset since last Fall with a wide-ranging state/federal investigation into market timing, late trading, and abusive fund sales practices.