ICI Weighs in on Mutual Fund Legislation

Washington (June 23, 2003) -- The national association of the mutual fund industry told legislators it was in favor of clarifying the roles of fund advisers and directors when it came to soft dollar arrangements. But it wants no part of proposed legislation that would force funds to hire independent board chairmen.

The Investment Company Institute supports a thorough review of soft-dollar practices.

"This is a good idea, and the SEC does not need to wait for legislation to take this step," ICI chairman Paul G. Haaga said in testimony before a subcommittee of the House Financial Services Committee on H.R. 2420, the "Mutual Funds Integrity and Fee Transparency Act."

Haaga said the group also supports a provision calling for the SEC to conduct a thorough review of soft-dollar practices. "We believe this is one of the most important issues addressed by the bill," he said. Haaga also urged the SEC to adopt rules it has already proposed that would require fund shareholder reports to disclose the cost in dollars of a $10,000 investment in the fund, based on the fund's actual expenses and return for the period of the report and said the industry supports H.R. 2420's provision to apply the standards for audit committees established in the Sarbanes-Oxley Act to mutual funds.

But the group disagreed with other measures, such as a provision to require mutual funds to have an independent chairman of the board. ICI contends that existing fund industry practices, such as having lead directors and regular meetings of independent directors in executive session, make it unnecessary. "Not only is it unnecessary, but having an independent chairman could actually result in a less effective board," Haaga said. In addition, he said it would be a mistake for legislation, rather than the SEC, to dictate how certain items are disclosed, and in which document they should appear. He recommended that once the SEC adopts new rules on expense disclosure, Congress should study their effectiveness before mandating additional disclosures, such as requiring disclosure of individualized operating expenses, which he said would be costly and would inhibit comparisons among funds.

-- WebCPA staff