A look at some proposals to clean up the mutual fund industry.

Byline: Andrew Countryman

FEES AND DISCLOSURE

A bill introduced by Rep. Richard Baker, R-La., would require disclosure in dollars, not just percentages, of investor fees; disclosure of compensation to brokerages for distribution of fund shares; and disclosure of so-called soft-dollar arrangements, in which funds steer transactions to a broker in exchange for research and other services.

Massachusetts Secretary of State William Galvin wants lawmakers to ban soft-dollar arrangements, which critics say increase investors' transaction fees.

A bill by Sens. Peter Fitzgerald, R-Ill., and Daniel Akaka, D-Hawaii, advocates: disclosure of portfolio managers' funds holdings; adding brokerage commissions to expenses; and providing written notice of brokers' compensation for selling funds.

New York Attorney General Eliot Spitzer proposed a measure to ensure mutual funds don't pay higher fees than pension funds for the same services.

DIRECTOR INDEPENDENCE

Baker's bill would mandate that at least two-thirds of fund directors be independent of the adviser, up from 40 percent; the Akaka-Fitzgerald bill puts it at 75 percent. Others have called for as few as one inside director.

Both bills would tighten definitions of independence.

The Senate bill would prevent board chairmen from being connected with advisers.

Former Securities Exchange Commission Chairman Arthur Levitt advocates putting an investor representative in an ombudsman role on fund boards.

OTHER PROPOSALS

To address claims that funds have allowed big investors to make trades after they are priced for the day, the leading mutual fund trade group urged rules that would require most transactions to be submitted earlier.

Fund giant Fidelity Investments and others urged creation of a central clearinghouse with technology to prevent late trading.

Mercer Bullard, founder of the Fund Democracy shareholder advocacy group, advocated creation of an independent oversight board. The Akaka-Fitzgerald bill would require the SEC to study the idea.

Fitzgerald said the answer may lie within the SEC. "Not enough attention has been paid to the industry until now," he said. "Now that it's a $7 trillion industry, it merits perhaps a whole separate division within the SEC."

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