PALM DESERT, Calif. - The president of the Investment Company Institute is calling for changes in the way bond mutual funds are explained to investors.
Matthew P. Fink, speaking to an industry conference here, said a gulf exists "between the way these funds sometimes are marketed and the information that shareholders need to make informed decisions."
Specifically, he said, rules governing disclosure of the returns on bond funds should be amended to cover oral presentations made by brokers.
Currently, the Securities and Exchange Commission requires the use of standardized yield formulas in bond fund advertisements. The rules also mandate the presentation of total return figures for the most recent one-, five-, and 10-year periods.
Mr. Fink said these rules have worked well but are of limited use to investors because they apply only to written disclosures. He said fund sales representatives should, under some circumstances, be required to provide similar information orally. The trade group, based in Washington, has asked the National Association of Securities Dealers to adopt such a rule, he added.
Mr. Fink made the comments in a keynote address to an investment management conference sponsored by the Federal Bar Association and Commerce Clearing House Inc. His suggestions merit close attention from bankers because bond funds account for the lion's share of mutual fund sales through banks.
Bond funds' popularity is a relatively recent phenomenon, Mr. Fink noted. In 1970, just 5% of mutual fund assets were in bond funds. But the interest rate rises of the early 1980s and the early 1990s fueled their popularity. Bond funds made up 44% of the $2.2 trillion invested in mutual funds in 1994.
In other remarks, Mr. Fink reiterated his call for financial services reform legislation that would place bank mutual fund activities under the primary jurisdiction of the SEC.
In exchange for obtaining full mutual fund powers, banks that manage funds should be required to register as investment advisers, and those that sell funds should have to register as broker-dealers, he said. Currently, banks are exempted from both requirements.
Bank-affiliated mutual fund companies that belong to the institute support such changes, Mr. Fink said.
"If you ask our bank members, the biggest problem they have is multiple, duplicative regulation by banking regulators on top of the SEC," he said.
Mr. Fink said he is hopeful that such legislation will be passed by Congress this year.
"I always bet against legislation happening, but this year the outlook for financial services reform is better than it has been in decades," he said.
