This week Craig S. Tyle, the Investment Company Institute's general counsel, sent an entirely unsurprising letter to Paul F. Roye, director of the SEC's Division of Investment Management. In it, Tyle outlined a series of arguments on why the SEC should not require more frequent disclosure of mutual fund holdings. But who was Tyle speaking for?

Though the ICI represents the fund industry, the letter does not conform to the views of all of its members. At least one fund firm -- MetaMarkets.com -- has already responded to the arguments in Tyle's letter by pointing out they there may be more demand from investors for more frequent disclosure than the ICI is letting on.

MetaMarkets.com may not be alone in its dissenting opinion. Though no other fund firm is taking a public stand, representatives from smaller fund firms have privately expressed concerns that the ICI places the interests of larger players over those of smaller players on some matters. Most are not surprised by this contention since the ICI's fee structure is based on the size of the complex.

MetaMarkets.com's cofounder Dave Nadig points out that up to three quarters of fund firms already provide quarterly information to fund trackers such as Morningstar. He guesses that the industry is probably split down the middle on the issue of more frequent disclosure.

The burgeoning debate focuses attention on one underlying point that is easy to miss: The fund industry is no monolith and different fund firms have different interests. It also brings a second related point into sharper relief. The fund industry is dynamic, not static, and today's giants may not be tomorrow's leaders. For the industry to remain healthy change must take place.

Large firms that move the prices of securities with their trades worry that revealing holdings on a more frequent basis will tip their portfolio managers' hands and allow frontrunners to harm their investors. Smaller firms may see more frequent disclosure as a competitive edge as they try to differentiate their services in a competitive marketplace. Meanwhile, data vendors and advisors will also benefit from more frequent disclosure by being able to better differentiate themselves if they have more information with which to work.

There is also some evidence that individual investors do like the idea of knowing more about what they own. A survey commissioned by MetaMarkets.com from Harris Interactive showed demand both from individual investors and investment advisors for more frequent data.

"Advisors overwhelmingly believe that more frequent, detailed holdings information would benefit their ability to serve their clients' interests and not present a difficulty to the fund companies," claims MetaMarkets.com's founder Dave Nadig.

Obviously, there is no one-size-fits-all answer to this debate. It is also clear that even firms calling for more disclosure do not necessarily want the SEC to add to the regulatory burden that it already imposes on funds. Even MetaMarket's founders agree that additional SEC regulation is not necessary to solve the problem of inadequate disclosure.

Nadig says that one solution to the issue would be for the ICI to embrace the concept of more frequent disclosure through its Best Practices program. Such action could even forestall action by the SEC. Ironically, by defensively fighting the SEC and refusing to budge an inch, the ICI may ultimately convince the SEC that there is a problem that needs looking into and further regulation.

Ultimately, there may be larger forces moving the industry toward more frequent disclosure whether the SEC mandates it or not.

The cost of providing updated information has fallen dramatically with the introduction of the Internet. This change provides incentives to new firms, and those firms with fewer assets, to differentiate themselves. Creative firms may also limit data to password protected advisor areas of their site to discourage front running.

Competing products such as managed accounts are finding success selling against "black box" fund products among higher net worth. One of the arguments for managed accounts is that the investors will be able to know exactly what they own. Since managed accounts are now growing faster than registered funds, their may be some merit to this argument.

Ultimately the market place -- the shareholders themselves -- will vote with their pocketbooks and shift assets to the model that they like. And their may be reason for the fund industry to kick start the model of more frequent disclosure.

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Read MetaMarkets Letter to ICI President Matthew Fink

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