Battle Lines Drawn over Deregulation of Mutual Funds

By Porter, Sylvia | THE JOURNAL RECORD, January 4, 1991 | Go to article overview

Battle Lines Drawn over Deregulation of Mutual Funds


Porter, Sylvia, THE JOURNAL RECORD


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The battle lines are being drawn for what promises to be one of the hottest financial controversies of 1991. The issue is the deregulation of mutual unds.

You would be wise to learn as much as you can about the issue and, when the time comes, to make your voice heard.

It all began last year when the Securities and Exchange Commission (SEC) published a ``concept release'' that proposed to reform the various regulations governing funds. Following a comment period, the SEC went to work on a formal proposal that will be presented to Congress in late winter or early spring.

While there are hardly any regulations that couldn't stand a bit of streamlining, there is considerable concern that a broad deregulation of the mutual funds industry could open the window for questionable and downright crooked funds to make a quick killing before they're pushed out of the marketplace.

One organization that argues for great caution in any deregulation of mutual funds is the North American Securities Administrators Association (NASAA), a group representing the securities regulators from the individual states.

The association says that the very nature of mutual funds is such that investors should receive more regulatory protection for mutual funds than for other kinds of securities.

``Many or even most of the current and prospective investors in mutual funds are largely unsophisticated consumers with limited awareness of the functioning of the marketplace,'' said M. Douglas Mays, association president, in a formal response to the SEC.

Mays noted that mutual funds have become the vehicle of choice for small investors, especially those who have been troubled by the extreme market volatility of the last few years. Two-thirds of mutual fund investors, he said, come from households with pre-tax income of less than $50,000, and more than one-fourth have pre-tax household income of less than $25,000.

Clearly, these are people who are unlikely to invest in stocks and bonds except in mutual funds whose portfolios usually are professionally managed. Mutual funds are seen by many as a very safe place to put money and to realize considerable income or growth without having to do the complicated homework necessary in other securities purchases. …

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