Senate Panel Convenes to Discuss Fund Fees

January 28, 2004 ( - A United States Senate panel has touched off an examination into mutual fund fees and possible action to mandate changes in fee structures from the halls of Congress.

Headed up by Senator Peter Fitzgerald (R – Illinois), the Senate panel heard denouncing of what was dubbed “hidden and excessive fees” mutual funds charges that “gouge millions of mutual fund investors.”   In addition, New York Attorney General Eliot Spitzer pointed out inequality in the practice of mutual funds of charging retail shareholders much higher fees than institutional investors, according to an Associated Press report.

Fitzgerald, meanwhile, called the mutual fund industry “the world’s largest skimming operation … a trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice of the nation’s household, college and retirement savings.”

Mutual funds have sat up and taken notice in recent weeks to the charges.   Tuesday, Putnam announced a sweeping fee reduction in the vast majority of its mutual funds (See Putnam Slices Fees, Ups Disclosures ).   Prior to Putnam’s actions, Alliance Funds divulged similar measures as part of a settlement with Spitzer’s office (See  Alliance, Regulators Reach Settlement).

Regulators and lawmakers have been busy at the issue as well.   The US Securities and Exchange Commission (SEC) proposed new rules, and the Senate is weighing legislation to overhaul the $7 trillion mutual fund industry, following overwhelming US House of Representatives passage of such a measure in November (See  SEC Moving Toward Greater Fund Fee Disclosure ).

Peter Scannell, a former call-center employee at Putnam Investments, also offered testimony at the hearing.   During his testimony, Scannell told members of the panel about physical harm he faced after confronting an investment-company superior about possible trading abuses in mutual funds.

After his supervisors refused to act on his concerns, Scannell went to federal and state regulators who smelled something rotten in the state of Putnam funds.   This in turn touched off a massive investigation into market-timing and late-trading improprieties not only at Putnam but also across the mutual fund community (See  Putnam Call-Center Rep Says Market-Timing Warnings Were Ignored ).