The results of the Coalition of Mutual Fund Investors’ study on redemption fees probably do not come as a surprise to many in the fund industry. What was the finding? In essence, that fund companies do not know who their shareholders are.

Specifically, the CMFI found that of the top 50 fund firms with redemption policies, 88 percent admit they either exclude or limit redemption fees on omnibus accounts because they cannot identify customers.

Thirty two of the 50 fund groups have redemption fees on at least one domestic or international equity fund. The lobbyists also found that nine of the 18 fund groups that do not have redemption fees said they may not be able to enforce their restrictions on omnibus accounts.

Most of the top 50 fund companies – 36 of them – have investor holding periods of 30 to 90 days. Nineteen of the 32 companies with redemption fees use the first in, first out (FIFO) method of calculating fees.

The CMFI issued the report on Tuesday. The report includes a table of the top 50 fund firms’ policies and an executive summary.

The lobbyists recommend that intermediaries disclose shareholder identity to funds on a daily or transactional basis.

Senator Peter Fitzgerald (R, Illinois), a primary sponsor of the Mutual Fund Reform Act of 2004, released an accompanying statement on the report, with a reminder that a solution is a mere bill away: "The Mutual Fund Reform Act of 2004 is the only mutual fund reform bill that addresses this glaring deficiency by requiring disclosure of individual shareholders in omnibus accounts," said Fitzgerald.

Not surprisingly, a section of the MFRA requires intermediaries to disclose shareholder identities. Section 216 requires that each account intermediary provide the name, taxpayer identification, mailing address and individual transaction data for each account.

Fitzgerald’s statement on the report did illustrate that the senator understands why intermediaries’ feet need to be held to the fire: "[t]o enforce fund policies fairly and uniformly, there are two possibilities...either the funds themselves do it, in which case they obviously need the information about their omnibus account customers and their trading, or the intermediaries do it, which they have not and which is unlikely since they have a financial disincentive to enforce these policies themselves."

CMFI is a Washington, D.C. lobbying firm started by three partners of D.C. law firm McGuiness & Holch. Niels Holch, Kevin McGuiness, and Markham Erickson started the firm in July of last year. 

Edited by: Theresa Sim


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