WASHINGTON The chairman of the U.S. Securities
and Exchange Commission said on Tuesday that there is
opportunity to give mutual fund investors clearer information
so that they know how much they are really paying in marketing,
advertising and distribution fees.
"We want to make sure that while some fees are upfront such
as front-end sales loads, other fees that behave similarly
aren't disguised," SEC Chairman Christopher Cox said after a
hosting a daylong round-table on mutual fund fees.
His comments come as the agency reviews how 401(k) savings
plans, which many American use for their retirement savings,
can provide clearer information to investors and whether mutual
funds should stop charging distribution fees.
Lawmakers have been scrutinizing retirement savings plans
holding hearings on whether the government should require
clearer disclosures of fees.
Securities experts agreed that more could be done to make
mutual funds more transparent but differed on how to do so.
"We are in favor of disclosure, but it is not necessarily
more information... it could be simpler presentations," said
Barbara Roper, director of investor protection at Consumer
Federation of America.
Richard Phillips, a partner at the law firm Kirkpatrick &
Lockhart Preston Gates Ellis, suggested a "unified fee."
"In terms of effective communication, simple is better," he
said. "A unified fee is much simpler. For a great mass of
investors it would be better understood and more susceptible
for competitive comparison."
But Don Phillips, managing director at mutual fund research
firm Morningstar Inc. argued against such a move.
Instead, he suggested that mutual fund expenses be divided
into three categories: portfolio management costs, client
services and administrative.
The SEC's round-table on mutual funds was targeted at
mutual funds with 12b-1 plans that which allow the fund to
charge distribution fees to shareholders.
The 12b-1 rule was adopted in 1980 after a period when
mutual funds had been experiencing significant net redemptions.
It was designed to stimulate fund growth, promote a more stable
fund asset base and create economies of scale that would reduce
But the use of 12b-1 fees has deviated from their original
purpose of covering a fund's advertising and distribution costs
and is now often used as a substitute for initial commission or
sales fees or to pay administrative expenses, according to Cox.
Fee proponents, such as smaller mutual fund companies, said
it has helped level the playing field.
"It really gives smaller mutual fund companies a fighting
chance against the big guys," said Mellody Hobson, president of
Ariel Capital Management. "It's not a small task for us on a
Cox would not provide a time frame for when the agency
would unveil proposed rules except to say "we'll take this one
step at a time...We will probably propose something within a