Congress Unveils New Mutual Fund Reform Bill

by Glen Shapiro, LawAndTax-News.com, New York

11 February 2004

Three US Senators on Monday announced the introduction of a new bill designed to reform the country's mutual fund industry, which has suffered several blows in recent months to its previously impeccable image.

Speaking at a news conference, Senator Peter Fitzgerald (R-Illinois) explained that: "We're taking the brokerage community off the gravy train," adding:

"There's nothing wrong with an honest load, but funds should call a load a load, make it account-based, and not disguise it."

The legislation, which is co-sponsored by Senators Susan Collins (R-Maine) and Carl Levin (D-Michigan), repeals a mutual fund law known as 12b-1, which addresses the fees charged by mutual funds to their investors. Although the original law was designed to help mutual funds cover their marketing costs, 12b-1 fees now often act as disguised charges or sales loads.

In addition, the reform bill would prohibit revenue sharing between brokers and funds, ban directed brokerage and soft commission deals, and introduce new measures designed to curb late trading.

Speaking to journalists, Senator Fitzgerald stressed that the legislative move was not intended as a criticism of the SEC, observing that:

"The SEC has actually been doing a pretty good job. They have been getting more and more aggressive. [But] they cannot do this on their own...It's necessary for Congress to legislate, to clean up the law."

Separately, the Securities and Exchange Commission (SEC) announced this week that it too intends to consider reforms to the 12b-1 regime.

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