As expected, Representative Richard Baker, chairman of the House Financial Services Subcommittee on the Capital Markets, has asked the SEC to explore the fees charged by fund firms. Baker made his request in a letter addressed to William Donaldson, chairman of the SEC.

Baker released the letter on his Web site today (download here in .pdf format). In it, he asked the SEC to provide input to the subcommittee on 18 items. The deadline for the input set by Baker is June 15.

He is specifically concerned about the issue of transparency, portfolio manager compensation, fund governance, fund performance and proxy voting. He also asks the SEC for information on both the use of 12b-1 fees by funds and the practice of revenue sharing.

Baker asks the SEC whether the 12b-1 rules should be updated based upon the evolution of mutual fund distribution practices since the rules were first written. Baker also appears to be approaching revenue sharing from a perspective of suspicious ignorance. He quotes an unnamed commentator calling revenue sharing a "dirty little secret" in the industry. He adds that the commentator estimates funds paid $2 billion in revenue sharing in 2000, or more than four times what they paid for advertising.

"Please describe how these arrangements work, the impact of these expenses on investors, the legal issues raised by such arrangements with respect to 12b-1, directors obligations with respect to these arrangements, and the transparency of these arrangements and their associated costs," Baker asks in the letter.  

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