Investment Management Newsflashes

New Proposals and Legislation to Reinstate Shareholder Trust in Mutual Funds

The mutual fund industry has been marred with scandals recently, and it has thus been mandated to comply with new preventative legislation. Due to the new laws and regulations, the costs of selling and servicing retail asset management products have sharply increased for mutual fund shareholders, and many firms will not be able to support the small investor. According to a recent TowerGroup report, the key issues causing lost trust are failure to apply breakpoints, late trading, market timing and broker conflicts of interest. To address these issues, the Investment Company Institute (ICI), the Securities Industry Association (SIA), the National Securities Clearing Corporation (NSCC), the Securities and Exchange Commission (SEC) and mutual fund and broker-dealer members have proposed recommendations such as Recommendation E, a standardized checklist or order verification process, and Recommendation F, a record of account/position linkage information. Although the suggestions have been proposed to replace the lost trust from investors, the report suggests that the high costs of the increased legislation will be passed on to the shareholder.

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