The Investment Company Institute has voiced strong support for rules adopted yesterday by the SEC to eliminate directed brokerage and improve the disclosure of information to investors on portfolio manager compensation.
“The SEC has moved quickly to develop sound regulatory reforms for America’s mutual funds and shareholders,” says Paul Schott Stevens, President of the ICI. “Eliminating directed brokerage further advances efforts to ensure shareholders’ best interests are protected.”
The ICI, which says it called for exactly this reform in December 2003, said the elimination of directed brokerage is a “milestone that will benefit fund investors and strengthen the operating integrity of mutual funds.”
The SEC’s ruling will prohibit the practice of directed brokerage, which allows mutual fund investment advisers to take into account sales of fund shares in selecting a broker-dealer to execute transactions in portfolio securities. Although directed brokerage is strictly regulated under existing rules, the practice is riddled with conflicts of interest.
The ICI adds that the SEC’s ruling to require prospectus disclosure about portfolio management team members, including information about other accounts managed by the portfolio managers, the ownership of securities in the fund and the compensation structure of the portfolio manager, will increase the transparency of fund operations. “The portfolio manager disclosure rule will provide investors with useful additional information about a fund’s management team, while balancing legitimate privacy concerns,” says Stevens.