Securities and Exchange Commission Chairman Mary Schapiro has called on Congress to allow broker-dealers to compete on commissions they charge when they sell mutual fund shares.
Securities and Exchange Commission Chairman Mary Schapiro has called on Congress to allow broker-dealers to compete on commissions they charge when they sell mutual fund shares.
She made the recommendation in a list of 42 legislative proposals that were released Thursday by Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.
Most of Ms. Schapiro's recommendations were technical changes in securities laws aimed at making it easier for the SEC to bring enforcement cases.
However, the call for repealing Section 22(d) of the Investment Company Act of 1940, which prohibits mutual funds from being sold at anything other than share prices listed in the fund prospectus, would be a major change in the way mutual funds are marketed.
Barbara Roper, the Pueblo, Colo.-based director of investor protection for the Consumer Federation of America in Washington, backs the change.
“Repealing 22(d) opens the door to the kind of meaningful price competition in the mutual fund market that has been so effective in bringing down commissions on stock sales,” she wrote in an e-mail.
“This would be an important step in realizing the goal, outlined in the administration's regulatory reform plan and in the investor protection legislation that the Treasury Department has delivered to the Hill, to identify and eliminate or reform compensation practices that encourage brokers and advisers to act in ways that are not in their clients' best interests.”
Another substantial change called for by Ms. Schapiro was giving the Public Company Accounting Oversight Board of Washington the authority to inspect auditors who conduct examinations of all broker-dealers, including privately held broker-dealers.
Currently the PCAOB regulates auditors that audit publicly held broker-dealers. Auditors that audit privately held broker-dealers must register with the PCAOB, which currently does not have the authority to inspect them or bring enforcement actions against them.
Mr. Kanjorski introduced such legislation in February. If passed, it could raise auditing costs substantially for many small privately held broker-dealers.
