Congressmen Ask GAO To Look Into Funds Charged By Mutual Funds

By

Washington

House Financial Services Committee Chairman Mike Oxley, R-Ohio, is asking the General Accounting Office to investigate fees charged by mutual funds.

In a letter jointly signed by Rep. Richard Baker, R-La., who chairs the Subcommittee on Capital Markets, the two representatives say that despite the tremendous growth in mutual funds over the past 50 years (from $2.5 billion to $7 trillion), the average expense ratio of an equity fund has doubled to 1.6% of assets.

The letter notes that increasing an expense ratio from 1% to 2% on a $10,000 investment earning 8% annually can reduce the total return by about $7,000 over a 20-year period.

“While a funds expense ratio may appear to represent just a small percentage of its total assets, the impact of these fees can be significant,” the letter says. “Many commentators have opined that expenses are the single most important factor to a shareholders return.”

Oxley and Baker are asking the GAO to examine current trends in mutual fund fees and the effectiveness of current disclosure rules.

In a statement, the Investment Company Institute, Washington, praises the Oxley-Baker initiative.

“The ICI fully supports the effort of Chairmen Oxley and Baker to restore confidence and robustness in financial markets,” the statement says. “We look forward to working with Congress and cooperating with the GAO on its report.”

In a separate statement, Oxley says that with the mutual fund investor in mind, Congress must carefully examine mutual funds and insist on integrity, transparency and accountability.

“The mutual fund investor, putting away $50 or $100 or $200 a month, fights an uphill battle for real returns against the always confusing array of sales commissions or loads, 12b-1 fees and assorted management fees,” he says.

Oxley made his comments in a speech last week before the Heritage Foundation, Washington.

Oxley says he is not in the habit of telling any business what it may or may not charge for services. The free market, he says, will do a much better job of determining that.

“But I do feel strongly about the need for transparency and disclosure,” Oxley says. “Time after time, shedding additional light on financial transactions leads to new knowledge, the resolution of improprieties and the leveling of playing fields, especially for the small investors who are now the core of the equities market.”

In other news, the Treasury Department says that no new anti-money laundering requirements are needed for insurance company separate accounts.

In a report to Congress on implementation of the anti-money laundering provisions of the USA Patriot Act, Treasury says that Unit Investment Trusts organized as insurance company separate accounts are likely to be required to establish anti-money programs once a Treasury Department proposed rule is finalized.

“Applying another set of anti-money laundering rules to such separate accounts appears unlikely to increase protection against money laundering,” the report says.

Carl Wilkerson, chief counsel for securities with the American Council of Life Insurers, praises the Treasury report. “ACLI applauds the reports thoughtful recognition that the Treasury Department has already developed comprehensive anti-money laundering requirements for life insurers,” Wilkerson says.

“Redundant anti-money laundering requirements would impede Patriot Act compliance and unreasonably stretch resources,” he adds.

On the estate tax front, the Boston-based group Responsible Wealth renewed its campaign to preserve the estate tax.

At a media event here last week, the groups chairman, William Gates Sr., called for a nationwide campaign to preserve the tax.

Repealing it, Gates says, would exacerbate the disparity between rich and poor in America.

Gates was joined at the event by world-renowned financier George Soros.

Responsible Wealth is planning a series of events across the country to generate support for retaining the estate tax.

Finally, the American Association of Health Plans, Washington, says the Medicare+Choice program is facing a funding crisis that could displace 670,000 more senior citizens and disabled people from the program by January 2004.

AAHP President Karen Ignagni, who appeared at a media event last week with a group of senior citizens, says the funding crisis puts Congress at risk of reneging on its promise to give seniors greater choices and lower out-of-pocket costs in Medicare.

The Medicare+Choice programs allows Medicare beneficiaries to choose to receive their health care services from managed care organizations.

Ignagni says that when funded adequately, Medicare+Choice offers beneficiaries better benefits with lower out-of-pocket costs than Medicares fee-for-service plan.

However, she says, because of inadequate funding, hundreds of thousands of beneficiaries are being forced out of the program.

According to a new AAHP survey, she says, more than 276,000 beneficiaries are projected to leave the program this year.

An additional 394,000 beneficiaries will leave the program by January 2004, Ignagni says, if the 108th Congress fails to take action to stabilize Medicare+Choice.


Reproduced from National Underwriter Life & Health/Financial Services Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.