The ICI has look regulators in the eye and blinked. And, it is probably a good thing for the industry that it did. In case you missed it, Monday morning Paul G. Haaga, acting in his role as chairman of the ICI, sent a letter to the SEC calling for the end of directed commissions in the fund industry.

Haaga, who is also a top executive at American Funds, also asked for a "dramatic" curtailment of the use of soft dollars by all investment advisors. Part of that curtailment would be a stricter definition of what qualifies as research that can be purchased with soft dollars and a ban on using soft dollars to pay for third-party research.

He added that the ICI is seeking "major structural reforms to change mutual funds' relationships with firms who execute their portfolio transactions and market and sell their funds."

The ICI's step follows the lead of regulators who recently fined Morgan Stanley $50 million for accepting directed commissions from funds on its preferred list. The SEC's Philadelphia office has said that it is looking into the practices of fund firms that were on the list.

It also bends to the prevailing winds in Congress. Any fund reform bill is likely to include restrictions on the use of soft dollars.

By coming out in support of the reforms, the industry may be hoping to regain some control over the flow of events in Washington. As recently as last summer, the ICI was fighting the passage of the Baker mutual fund reform bill. At that time, the bill was essentially gutted. In recent weeks, though, the bill has gained new life, and teeth, as outrage of the fund scandals uncovered by Eliot Spitzer and William Galvin has grown.  

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