Should Mutual Funds Tell All?

September 2003
Journal of Financial Planning;Sep2003, Vol. 16 Issue 9, p16
Academic Journal
This article reports that in a document to the U.S. House Finance Committee, the Securities and Exchange Commission (SEC) argued that the mutual fund industry should tell customers more about the costs associated with managing funds. Specifically, the SEC would like the fund industry to let investors know details on portfolio trading costs, soft dollar relationships with brokerage firms, and portfolio managers' compensation. In relation to portfolio trading costs, the SEC explains that a fund with a heavy turnover of stocks has increased trading commission costs. Soft dollar relationships with brokerage firms, on the other hand, are funds that often funnel business to brokers who charge commissions in excess of the lowest available but who, in return, help pay for the funds' expenses. Meanwhile, regarding portfolio managers' compensation, the SEC would like fund companies to disclose whether a manager's compensation is based on hitting particular targets during a three-month, one-year or five-year term, which would reveal whether the manager is more interested in short-term or long-term results.


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