The Securities and Exchange Commission wants investors to know more about mutual funds and their behind-the-scenes directors. And it plans to get the word out by amending proxy-disclosure rules that have not been tinkered with since their adoption 30 years ago.
The agency issued the proposed proxy changes at a public meeting last week. Simply put, the proposal would require fund companies to provide substantially more information about fees and expenses. Public comment is being sought for 60 days.
Under the revisions, proxy statements would have to reveal the total compensation a director receives from all fund boards within a single fund family. Directors routinely serve on the boards of several different funds within a given family.
Wide Range of Compensation
Compensation for fund directors varies widely. According to Fund Directions, an industry newsletter, pay ranges from $1,600 for small funds families to $145,800 for large groups.
Trustees of bank funds generally are paid about the same as directors of other mutual funds, said Brian W. Smith, a partner at Mayer, Brown & Platt, a Washington law firm whose clients include a number of bank-managed mutual funds.
Fund trustees hire and oversee the advisers who make investment decisions and keep tabs on the funds' distributors, accountants, and others.
|A Little Unclear'
Bankers are prohibited by the Glass-Steagall Act from serving on the boards of their institutions' proprietary funds. Bank officers do, however, frequently nominate board members.
Mr. Smith said the SEC's proposals should not be too difficult to digest. "It's a little unclear as to how far it will go," he said. "But I don't think it will be a major event."
The SEC also proposed at last week's meeting to ease the rules for allowing mutual fund companies to organize their funds in the popular multiple-classes-of-shares structure.
The structure enables mutual fund companies to create different pricing structures for a single fund. For instance, some companies offer investors the choice of paying sales loads up front, upon redemption, or as an annual fee. Among the banks that use the structure are NationsBank Corp. and Banc One Corp.
Companies issuing classes of shares now have to seek an exemptive order from the SEC, a process that can take months. The SEC has issued more than 90 such orders since 1985.
Under the proposal issued last week, the exemption requirement would be dropped. The change is designed to "streamline the conditions imposed on multiple-class funds while preserving investor protection."
At the same time, however, the SEC proposed certain disclosure and reporting requirements to govern both multiple-class and master-feeder, or hub-and-spoke, funds - which are also sold with different pricing features. Prospectuses and marketing documents would have to provide full information on the existence of the different classes and disclose their sales charges.
The SEC says the changes will make it easier for investors to choose the most suitable share class and fee structure. The proposal also addresses voting rules and allocation of fund expenses.
The Holden Group has come out with a handbook to help bank directors and officers comply with investment-product sales guidelines that bank agencies issued this year.
The Los Angeles company, which helps banks set up annuity sales programs in branches, said it designed the book for board members because regulators have signaled that they will hold bank boards accountable if anything goes awry.
