The SEC will be taking a close look at soft-dollar and directed brokerage practices at mutual funds during the next six weeks, but industry participants do not expect major reforms anytime soon.
"Transparency of fees is more on their minds and market timing is more on their minds" than soft dollars and directed brokerage, said Theodore Eichenlaub, a former SEC official and founder of Adviser Compliance Associates, a manager consulting firm in Washington.
On Dec. 3, the Securities and Exchange Commission issued rules designed to end late trading and force more disclosure on funds' market-timing policies. The commission also set a short timetable to issue additional rules on fee disclosure and other fund policies.
Despite the heavy focus on late trading and market timing, soft dollars and directed brokerage are on the SEC's radar screen."I think it's something that they're definitely entertaining," mainly because of pressure from Congress, Mr. Eichenlaub said.
On Nov. 19, the House of Representatives passed legislation sponsored by Rep. Richard H. Baker, R-La., that would require registered investment advisers who manage mutual funds to submit reports annually to the fund boards on revenue-sharing, directed brokerage and soft-dollar arrangements. The bill also would require the SEC to study the issue.