WASHINGTON Bill targets mutual-fund management industry loopholes

A growing national scandal could put the bill on a fast track.
By MYRON STRUCK
STATES NEWS SERVICE
WASHINGTON -- Despite a tight legislative agenda and the rush to adjourn, there may be enough momentum to push through a bill that was not even considered an option, or even necessary, just a month ago -- legislation repairing the perceived loopholes in the mutual-fund management industry.
Just days after a Senate hearing to examine the depth of the problem, Sen. Daniel K. Akaka, D-Hawaii, dropped in a bipartisan bill. It is co-sponsored by the chairman of the Senate Governmental Affairs subcommittee on financial management that conducted a hearing, Sen. Peter G. Fitzgerald, R-Ill. Akaka is the ranking Democrat on the panel.
"Public confidence in mutual funds will not recover if funds continue to employ different sets of rules for large and small investors, engage in ethical misconduct, and enrich themselves at the expense of shareholders," Akaka said.
"The transgressions brought to light underscore the absence of effective oversight by the boards of mutual funds companies. This legislation will strengthen board independence and enhance the transparency of financial relationships. The American investing public deserves nothing less."
What it would require
The Mutual Fund Transparency Act would require the disclosure of the financial relationships between brokers and mutual fund companies and disclosure of the way brokerage commissions are paid by mutual fund companies.
The bill may be on a fast track, in part, because of a budding national scandal that has left Putnam Investments without its long-time CEO, and has several other mutual fund companies facing regulatory scrutiny from the Securities and Exchange Commission for their handling of mutual fund activities.
The bill quickly drew popular support from a broad coalition of consumer-oriented groups, including Investor Protection, Consumer Federation of America; Fund Democracy; Consumer Action; U.S. Public Interest Research Group; and Consumers Union.
Recently, the Consumer Federation of America-Fund Democracy released a study that showed the "excess costs paid by investors in S & amp;P 500 Index funds found that many of the funds with unjustifiably high expense ratios were funds that brokers sold on commission." The legislation would correct this problem.