THE COLOR OF MONEY
Speak your mind on SEC's proposed mutual fund rules

By Michelle Singletary

Recently, the Securities and Exchange Commission announced that some brokerage firms had failed to disclose that brokers were receiving money from mutual fund companies in exchange for steering investors to their specific fund products.

This news comes on the heels of another investigation that found brokerage firms, with the help of mutual fund managers, had allowed illegal after-hours trading for select customers.

The SEC has proposed new investment company guidelines for mutual fund companies and the sale of fund shares. Among some of the proposed rule changes:

• Investment advisers for mutual funds would have to adopt codes of ethics that address, among other things, personal trading by employees who have access to nonpublic information.
• Seventy-five percent of the board of directors for a mutual fund company would have to be independent. And the board would have to be led by an independent chairman. The SEC said this requirement would strengthen the presence of independent directors and improve their ability to negotiate lower advisory fees and other important matters on behalf of the fund and fund shareholders.
• Professionals who sell mutual funds would have to reveal the costs of buying fund shares and any possible conflicts of interest. And the transaction cost must be expressed in dollars and as a percentage of the net amount invested. In addition, any dealer concession that the broker, dealer or municipal securities dealer (folks selling 529 plans) earns in connection with a transaction must be expressed in dollars and as a percentage of the net amount invested.
• Customers would receive cost and conflict of interest information at two key times — first at the point of sale, and second at the completion of the sale.
• Companies would have to give investors information that would help them see how their particular mutual fund's costs and payments compare with those of other similar mutual funds.

We small investors now get to weigh in on this issue.

"In the coming weeks, feedback from commenters will be critical to our evaluation of the proposals and any needed refinements," said SEC Chairman William H. Donaldson during a recent commission meeting. "I ... strongly encourage fund shareholders, as well as industry participants, to involve themselves in our rulemaking process."

Let's take Donaldson up on his offer.

In fact, the SEC wants to form investor focus groups. I think this is such a fantastic idea. Just think, they want real people to look over the proposed rules — and the standardized disclosure forms that go along with the rules — so that the average investors will have information that is informative and useful.

Hallelujah!

So, please, folks, contact the SEC. Send your comments by carrier pigeons if you have to. But for goodness sake, let the commission know what you think.

Written comments should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Send e-mail to rulecomments@sec.gov. All comments, including e-mail, should refer to the "New Confirmation and Point of Sale Disclosure Requirements."