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ICI Asks SEC To Tighten Regulations

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NU Online News Service, Dec. 15, 2003, 10:52 a.m. EST – The Investment Company Institute, Washington, says it will ask the U.S. Securities and Exchange Commission to discourage use of “soft dollars” by mutual fund managers and other investment advisors.[@@]

The ICI, the leading mutual fund industry trade group, also says it will ask the SEC to ban mutual funds’ use of “directed brokerage.”

In the investment world, the term “soft dollars” refers to payments for research and other brokerage services through commissions or directed underwriting rather than through fees, according to the NASD, Washington. Brokerage houses use soft dollars to give fund managers a financial incentive to buy their trading services.

The ICI is recommending that the SEC eliminate most products and services that are otherwise available in the marketplace from the SEC’s definition of permitted research.

Today, the ICI says, fund companies can use soft dollars to pay for computers, software and investment publications. Advisors also can use soft dollars to buy research products and services from outside parties.

The ICI “is convinced a much narrower definition will help eliminate the potential abuses most often associated with the questionable use of soft dollars,” the ICI says in a statement about its recommendations.

The ICI wants the SEC to limit the use of soft dollars to purchasing “proprietary research that reflects unique intellectual content.”

The other practice under attack, “directed brokerage,” lets a fund company consider the fact that a broker sells its mutual funds when choosing a broker to execute its portfolio trades.

The practice already is subject to strict regulation, but banning it would eliminate a significant potential conflict of interest, the ICI says.


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