- The Washington Times - Thursday, March 13, 2003

Fees paid by investors in mutual funds are rising despite intense competition in the $6 trillion industry, and some fees are hidden so that it is difficult to compare funds, a House lawmaker said yesterday.
"Fees and expenses, in fact, are going up," Rep. Michael G. Oxley, Ohio Republican and chairman of the House Financial Services Committee, said as a panel subcommittee examined the mutual fund industry at a hearing.
Average fees for large stock funds have increased while fees charged by major bond funds have declined, says a report by the General Accounting Office.
While investors have become aware of some fund fees such as sales loads, other fees "are either hidden or opaque, escaping the attention of even savvy fund investors," Mr. Oxley said.
An inspection by securities regulators, meanwhile, found that brokers did not give large-scale investors in mutual funds the discounts they were owed in nearly a third of transactions.
The Securities and Exchange Commission said Tuesday that as a result of the examination, about 2,000 brokerage firms have been required to review their transactions in mutual funds with upfront sales charges.
An inspection "sweep" of 43 brokerage firms from November through January by the SEC, the New York Stock Exchange and the National Association of Securities Dealers, the industry's self-policing body, found that most firms apparently inadvertently failed to provide the required discounts in at least some instances.
With investor confidence shaken by last year's wave of corporate accounting scandals, lawmakers and the SEC are focusing on mutual funds with 93 million Americans invested in U.S. stock funds as a field for stricter regulation.
The SEC last month proposed rules that would tighten internal controls within mutual fund companies and opened to public review the idea of creating a self-policing organization for the fund industry.
The vote by the five SEC commissioners followed closely their move in January, over industry objections, to force mutual funds to tell investors how they voted on decisions at the companies whose shares they were holding.
For mutual fund investors, "Higher costs lead to lower investment returns," John Bogle, founder and former chief executive of the Vanguard Group mutual fund company, said in testimony prepared for the hearing by the capital markets subcommittee. "Over the past 20 years, costs have deprived the average equity fund investor of nearly one-half of the stock market's return."
Investors who are deprived improperly of the mutual fund discounts will be compensated and brokerage firms may be disciplined in cases where they fail to remedy problems or brokers' conduct is seriously harmful, Mary L. Schapiro, NASD's vice chairman and president of regulatory policy operations, said Tuesday.

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