Thursday, August 19, 2004

SEC Vote Prohibits Mutual Funds From Directed Brokerage

SEC Vote Prohibits Mutual Funds From Directed "The Securities and Exchange Commission yesterday unanimously approved a new rule that bars mutual fund companies from steering trades to brokers who promise to promote the funds in exchange for stock and bond business"

This marks a continuation in the SEC's attempt to reform the mutual fund industry. Specifically, the newest rules change is an attempt to lessen the conflicts of interest and level the playing field in the ever important mutual fund industry. This rule change came about partially as a result of the scandals that have occurred in the past few years involving fund companies.

As the NY Times puts it:
"The rule on increased commissions, incentive payments known as "directed brokerage," resulted from an industry wide investigation of fund sales practices that regulators began last year. Morgan Stanley and MFS Investment Management have each paid $50 million to settle S.E.C. accusations that they failed to disclose the payments. The companies neither admitted nor denied the accusations.

The incentive payments are often hidden from investors and can taint brokers' advice, officials said at yesterday's meeting."

A definite step in the right direction!

Just an interesting note, many of these new rules were at least mentioned in a December 2003 speech by SEC Commissioner Harvey Goldschmid. It makes good reading. (or if your hands and eyes are busy elsewhere, good ristening--use the text to sound link).


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