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Rating:Oxley Goes After the Fund Industry Not Rated 5.0 Email Routing List Email & Route  Print Print
Wednesday, January 15, 2003

Oxley Goes After the Fund Industry

by: Sean Hanna, Editor in Chief

The fund industry is getting more attention from the House Financial Services Committee. Michael G. Oxley (R, Ohio), the committee head is asking the Government Accounting Office (GAO) to look into current trends in mutual fund fees, disclosure and transparency. Also signing the letter was Richard H. Baker (R, Louisiana), head of the House Subcommittee on Capital Markets.

This is the second time in recent days that Oxley has started an inquiry into fund industry practices. Last week Oxley also sent a letter to the SEC and NASD inquiring about their research into whether brokerage firms are properly recognizing commission breakpoints.

Oxley elaborated on his thoughts in a speech made this morning to a meeting sponsored by The Heritage Foundation and The New Millennium Research Council.

One hot-button issue for Oxley appears to be how 12b-1 fees are used in the distribution and marketing of funds. SEC Chairman Harvey Pitt also raised that issue in a speech to ICI members last spring. The issue appears to have slipped off the SEC's current agenda, though. Another is the use of soft-dollar arrangements used by funds, and whether those arrangements conflict with best execution of the fund's trades.

"I think many mutual fund owners might be surprised to learn that mutual fund companies spend billions of their dollars for 'soft dollar arrangements' with brokerage firms to purchase an extensive array of outside research products," said Oxley.

He is also concerned about the transparency of the fund industry.

"With the mutual fund investor in mind, we must carefully examine mutual funds and insist on integrity, transparency and accountability. The mutual fund investor, putting away $50 or $100 or $200 a month, fights an uphill battle for real returns against the always-confusing array of sales commissions or loads, 12b-1 fees, and assorted management fees. Also, the mutual fund investor has to evaluate the fund's after-tax performance and its effect on his own bottom line," Oxley told the conference.

He then cited John Bogle in support of his belief that small fees add up to make a big difference to fund investors.

Oxley added that he supports both the calls for more frequent portfolio disclosure and the SEC's proposed proxy-voting disclure rules.

Finally, Oxley wants the GAO to report findings by April. What he was seeking is essentially a follow-up to the 2000 GAO report that first investigated the issue of fees charged by mutual funds. At that time, the GAO recommended more fee disclosures.

Those who would like to read the letter can find it here in .pdf format. The text of Oxley's speech is available on the Web at here.  

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