Paul Roye, director of the SEC's division of investment management, confirmed that tightening the definition of investment research is on the table, but he declined to say if the SEC would go as far as the ICI's proposal to revert to the pre-1986 definition of research.
Meanwhile, two Democratic presidential hopefuls, Sens. John Kerry of Massachusetts and Joseph Lieberman of Connecticut, are already pushing for mutual fund reform legislation that shines a light on these practices. The House already passed mutual fund reform legislation introduced by Rep. Richard Baker, R-La., which calls for the SEC to study soft dollars.
"I do think there will be some mutual fund reform bill in the first half of 2004 and soft dollars will be part of that," said David G. Tittsworth, executive director of the Washington-based Investment Counsel Association of America. The recent proposals presented by the mutual fund industry trade association put additional pressure on the SEC to act, he said.
The SEC's failure to act on the issue could give the Democratic presidential nominee fodder in campaigning against President Bush, some suggest. At the same time, New York Attorney General Eliot Spitzer, a Democrat, has already made his crackdown on mutual funds part of his 2006 campaign for re-election.
"Kerry did not introduce a mutual fund bill because he had plenty of free time on his hands," Mr. Bullard said wryly. "It could become an issue in the elections. This is, after all, Bush's SEC and (Chairman) William Donaldson is his appointee, and Bush should be held accountable for this scandal," said Mr. Bullard, previously assistant chief counsel in the SEC's division of investment management.
The Mutual Fund Investor Confidence Restoration Act of 2003, introduced Nov. 25 by Sens. Jon Corzine, D-N.J., and Christopher Dodd, D-Conn., and co-sponsored by Mr. Lieberman, would require investment advisers, including mutual fund managers, to give investors information, at least annually, about research services obtained from brokers as part of soft-dollar arrangements. At the same time, the Mutual Fund Investor Protection Act, also introduced on Nov. 25 by Sens. Kerry and Edward M. Kennedy, D-Mass., would require mutual funds to give a full accounting to investors about the fees they pay, including brokerage expenses. The legislation also would set up a new oversight board to regulate mutual funds.
But, Stanton Green, managing director at New York-based independent research firm Vista Research LLC, said passage of any legislation is at least a year away.
But some mutual fund companies are not waiting for legislators or regulators.