Magazine article American Banker

SEC Studying Effectiveness of Independent Directors on Mutual Fund Boards

Magazine article American Banker

SEC Studying Effectiveness of Independent Directors on Mutual Fund Boards

Article excerpt

WASHINGTON -

The Securities and Exchange Commission is reassessing the role of the behind-the-scenes mutual fund players known as independent directors.

These directors, who serve on mutual fund boards alongside officers of an investment company and its affiliates, are expected to function as advocates for investors. But their effectiveness has been questioned in recent years, partly in lawsuits brought by investors.

The rapid growth of the mutual fund industry is reason enough to examine how independent directors can protect the interests of investors, SEC Chairman Arthur Levitt said Tuesday as he kicked off a two-day roundtable on the role of independent directors. He noted that 66 million Americans own fund shares and that industry assets spiked to $5.5 trillion in 1998.

"We owe it to those 66 million people to ensure those funds are being run in their best interest," Mr. Levitt told the roughly 200 people who attended the forum. "We want to know what works, and more importantly we want to know what doesn't work."

The SEC asks a lot of directors, and "we may ask more of directors in the future," Paul F. Roye, director of the SEC's division of investment management, said in remarks that followed Mr. Levitt's.

Topics of the two-day forum include mutual fund fees and distribution agreements, soft-dollar arrangements, disclosure requirements, and special issues relating to bank-run funds.

Mutual funds, which are organized similar to corporations, have a board of directors to oversee issues such as portfolio management, fees, and performance. …

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