What are 1200 lawyers doing in the desert?

Sounds like the beginning to a bad lawyer joke, right?

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In this case, the lawyers were attendees at the 35th annual ICI Mutual Funds and Investment Management Conference -- mostly compliance officers and counsel, with other fund execs, for many of the industry's leading fund companies. And the desert in question was actually Palm Desert, California, one of the country's most luxurious resort areas.

The opening keynote addresses by Matt Fink, president of the ICI and Paul Roye, director of the division of investment management at the SEC, provided a rundown of the industry's agenda for regulatory issues for the upcoming year.

At the top of Fink's list was taking a long hard look at the use of sky-high 1999 returns in mutual fund advertising, in order to avoid misleading the retail public -- Fink said he has suggested that the SEC explore the issue. Roye later said in his own keynote that the SEC "would not tolerate misuse of advertising to mislead investors."

Fink also said that the ICI would be keeping close tabs on the ongoing saga of the NYSE and NASDAQ's transition to public companies in order to insure that the self-regulatory sides of these entities continue their investor protection.

In addition, Fink's address touched on the investor privacy issue, of increasing import to regulatory bodies. While he said that in many ways, the loss of some privacy was "an unfortunate by-product of the Internet explosion," he also said he thought that further Congressional action was possible, even probable to protect investors' personal information.

That said, Fink also stressed that "it is important to protect the unique structure of a mutual fund," in order to insure communication between the various entities involved in the fund, from shareholder services, to its transfer agent, to its board of directors to its investment managers.

Roye loosened up the crowd, when his turn came to keynote, with the story of his plane ride from Washington, DC. It turns out that he rode next to Eddie the dog, from the television show Frasier, who actually is named Moose and according to Roye, was more than a little peeved at having to ride coach aftewr his handler flubbed the ticketing. But Moose eventually got into the mutual fund spirit, asserting that he would make a fine independent director/watchdog, as long as the restrictions on family member disclosure were eased in his case.

Roye's address often came back to technology, and the need to continually embrace it, in order for the industry to move forward. An example he used was the carrier pigeon network used by Nathan Rothchild to more quickly transit financial information in the early nineteenth century and build his fortune. After awhile, everyone adopted the same system and negated Rothchild's advantage. Roye's point was that his office was making every effort to level the playing field, and increasing technology and quicker dissemination of information was assisting the process in many ways.

In context of the slow-down in fund flows, he said that "much of the thinking is short-term and reactive," as online trading of equities, profit-taking as indices were at or near all-time highs, and nervousness as the market showed signs of volatility all contributed to the reduced flows.

"Technology is making mass customization more accessible," said Roye, as another reason why flows have slowed, citing the improved portfolio management tools being offered by advisors, as well as the lowered minimums for separate accounts which eat into the fund management business. Roye also touched on the advent of exchange-traded funds as a potential challenge for traditional mutual funds. He said the SEC's disclosure office is seeing many more funds with uniques investment philosophies these days.

Finally, Roye came back to the point that Fink had raised earlier in asserting that the SEC was concerned that mutual funds would respond to the ever- more competitive environment with "overly aggressive advertising." Advertising campaigns stressing the huge returns of the last year have the potential to be "at best opportunistic, and at worst misleading," he added. Roye stressed that the commission would be taking a close look at fund company Web sites, sales literature and advertising in order to determine the next steps.

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