Since allegations of market timing, late trading, hidden fees, and other practices that may not be in investors' interests came to light in 2002 and 2003, the mutual fund industry has laid the groundwork for a wide range of reforms designed to promote greater clarity in mutual fund practices and strengthen compliance with existing laws.
The reforms are expected to have a significant impact on how funds are overseen, marketed, and sold. While some in the industry express concern that the reforms will have a negative impact on investors — both in terms of burdensome restrictions that stifle innovation and competition and high costs that will eventually be passed on to shareholders — most agree that the changes will improve the fairness and transparency of mutual fund operations, and help consumers make informed investment choices.
Here are some of the areas where the reforms are having the most impact:
Clearer disclosure of fees and charges to help investors compare costs across funds and to industry averages
Redemption fees on short-term trades to discourage market timing,
a practice that is legal but may reduce the value of long-term mutual fund investors' holdings
More current information about portfolio holdings, including access to complete quarterly portfolio information
Clear disclosure of portfolio managers' compensation, ownership of shares, and potential conflicts of interest
Improved tools and information to facilitate the delivery of breakpoints — volume discounts on front-end load funds that investors may be entitled to
Rules to eliminate conflicts of interest in mutual fund sales arrangements
Compliance programs to enforce rules and prevent violations, overseen by a Chief Compliance Officer (CCO) appointed by the mutual fund board of directors
