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| March 25, 2004 | |||
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CHAIRMAN COLLINS URGES SEC TO MAKE FURTHER MUTUAL FUND INDUSTRY REFORMS
Calls for Better Disclosure of Fees and Expenses; Will Testify Before Banking Committee Next Week |
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WASHINGTON, D.C. -- Senate Governmental Affairs Committee Chairman Susan Collins (R-ME) expressed support for actions the Securities and Exchange Commission (SEC) has made to date in reforming the mutual fund industry, but urged the agency to take further steps -- particularly improved disclosure of fees and expenses -- to protect mutual fund owners.
In a letter sent to SEC Chairman William Donaldson, Senator Collins wrote, “Mutual funds are widely seen by many Americans as a ‘safe haven’ when investing their hard earned savings to purchase their home, educate their children, and retire with the dignity that adequate financial resources can provide. Protecting them to the fullest extent possible is among my highest priorities as a United States Senator.” During two recent Senate Governmental Affairs subcommittee hearings on mutual fund reform, Senator Collins called for improved disclosure of fees and expenses. She reiterated that call in her letter. “I am particularly pleased by the SEC’s proposal that mutual fund companies disclose certain uniform expense data to their shareholders. I believe that helping investors to understand the cost of their mutual funds is a vital first step towards market discipline of mutual fund expenses, and I would urge the SEC to go even further,” she wrote. “No task, in my opinion, could be of higher priority to the SEC at present than ensuring that we are doing everything in our power to protect mutual fund shareholders from unwarranted costs,” Senator Collins continued, and urged the full disclosure of such information in shareholder account statements, which are more familiar and readily accessible to shareholders than existing sources of cost information. “I would urge the SEC to consider seriously the General Accounting Office’s (GAO) recommendation that these data be personalized to individual shareholders. In my experience, generalized cost data of the type that the Commission proposes to disclose will not lead shareholders to a full appreciation of their funds’ costs. Although a shareholder could, conceivably, calculate his actual costs from such data, this constitutes an extra step many simply will not take. As a result, many shareholders will continue to lack a full understanding of what they are paying to own their funds-an understanding that is an essential component of a truly efficient market,” Senator Collins wrote. Senator Collins recently joined Senators Peter Fitzgerald (R-IL) and Carl Levin (D-MI) in introducing the Mutual Fund Reform Act of 2004, which addresses abusive practices such as ‘late trading’ and ‘market timing,’ and would significantly overhaul the arcane and opaque structure of fees and expenses that has prevented meaningful price competition among the approximately 8,200 mutual funds that are offered to investors. Senator Collins is also expected to testify on March 31 before the Senate Banking Committee on mutual fund reforms. Although mutual funds have been around for nearly 80 years, they have only become popular investment choices in the past 25 years. With the decline of traditional pension plans and the rise of 401(k) and similar self-directed retirement plans, roughly 50 percent of American households own a mutual fund today, and total assets are approximately $7 trillion. Approximately 445,000 Mainers have invested in mutual funds. The text of the letter appears below. March 8, 2004 Mr. William Donaldson Chairman Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Dear Chairman Donaldson, I wish to express my support for the Securities and Exchange Commission’s (SEC) recent initiatives to strengthen the regulation and oversight of the mutual fund industry. The Commission has finalized pending rules, initiated many thoughtful proposals, and continues to solicit additional input on a broad range of issues that deserve further study. As a result, a good start has been made in addressing both recently uncovered abuses and the long-standing problem of excessive fees in the mutual fund industry. No task, in my opinion, could be of higher priority to the SEC at present than ensuring that we are doing everything in our power to protect mutual fund shareholders from unwarranted costs. I am particularly pleased by the SEC’s proposal that mutual fund companies disclose certain uniform expense data to their shareholders. I believe that helping investors to understand the cost of their mutual funds is a vital first step towards market discipline of mutual fund expenses, and I would urge the SEC to go even further. First, such disclosure should take place in shareholder account statements. As a former Commissioner of the Maine Department of Professional and Financial Regulation, which oversees securities regulation in Maine, I am convinced that the only document that a typical shareholder reliably consults is an account statement. Consequently, disclosure through other channels would be significantly less effective in my judgment. Next, I would urge the SEC to consider seriously the General Accounting Office’s (GAO) recommendation that these data be personalized to individual shareholders. In my experience, generalized cost data of the type that the Commission proposes to disclose will not lead shareholders to a full appreciation of their funds’ costs. Although a shareholder could, conceivably, calculate his actual costs from such data, this constitutes an extra step many simply will not take. As a result, many shareholders will continue to lack a full understanding of what they are paying to own their funds - an understanding that is an essential component of a truly efficient market. In closing, let me reiterate my regard for the SEC’s recent actions to protect mutual fund owners. Mutual funds are widely seen by many Americans as a “safe haven” when investing their hard earned savings to purchase their home, educate their children, and retire with the dignity that adequate financial resources can provide. Protecting them to the fullest extent possible is among my highest priorities as a United States Senator. I hope these comments will be of use to the SEC as it continues its work in this area. Sincerely, Susan M. Collins Chairman |
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340 Dirksen Senate Office Building
Washington, D.C. 20510