Mutual Fund Legislation Introduced in the Senate

Washington, DC, May 19, 2005 - Senator Daniel K. Akaka (D-HI), of the Senate Committee on Governmental Affairs, recently introduced S. 1037, the “Mutual Fund Transparency Act of 2005.”

Background
S. 1037 is a modified version of the mutual fund bill that Senator Akaka introduced in November 2003. Specifically, S. 1037 would:

• require brokers to disclose in writing to customers who purchase mutual fund shares the amount of compensation received by the broker in connection with the transaction;
• direct the SEC to adopt rules requiring disclosure of fund brokerage commissions, both as an aggregate dollar amount and as a percentage of assets;
• require the SEC to conduct a study of the financial literacy of mutual fund investors and to report on the study to the Senate Banking Committee and the House Financial Services Committee within one year after enactment of the Act; and
• require the Comptroller General of the United States to conduct a study on mutual fund advertising.

A new section of the bill would direct the SEC to promulgate rules requiring brokers to disclose in writing to customers who purchase mutual fund shares the source and amount, in dollars and as a percentage of assets, of compensation (including revenue sharing payments) received or to be received by the broker in connection with the transaction. Also, the bill would require brokers to provide customers with information on the differential payments and average fees for comparable transactions. The disclosures would have to be made to permit the person purchasing the shares to evaluate such disclosures before deciding to engage in the transaction.

Another new section of the bill would direct each national securities association to adopt rules requiring that a broker that provides individualized investment advice to a person will have a fiduciary duty to that person; act solely in the best interests of that person; and fully disclose all potential conflicts of interests and other material information prior to the time that the investment advice is first provided to the person and at least annually thereafter.

Related Links
Sections of this website are dedicated to the Institute's work in several areas covered by the “Mutual Fund Transparency Act of 2005:” fund disclosure, directors and fund governance, fund fees and expenses, investor education, and market and investment adviser issues.