The SEC is unlikely to regulate do-it-yourself portfolio investments, such as those offered by FOLIOfn, an electronic brokerage firm, as mutual funds, Paul F. Roye, director of the SECs investment management division said today at the Investment Company Institutes annual general meeting in Washington. "We are not persuaded by arguments that because a product competes directly with mutual funds it should be regulated as a mutual fund.
Instead, Mr. Roye raised the possibility that such companies, which offer investors model baskets of securities as well as the opportunity to create their own portfolios, might need to be regulated as investment advisers. A FOLIOfn spokesman said the company would not comment on Mr. Royes speech.
Mr. Roye also said tough times in the mutual fund industry might prompt firms to explore other aspects of the money management business, such as offering private accounts or sponsoring and advising hedge funds. However, companies need to be mindful of the possible conflicts of interests, he added.
"We expect firms to have compliance procedures in place to address these concerns, Mr. Roye said. He also warned the SEC is carefully monitoring mutual funds that use hedge-fund-type strategies such as short selling and the aggressive leverage and derivatives, since securities regulations limit the use of such strategies.