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Dan Jamieson
Jonathan G. Katz
Dear Mr. Katz: As an investor, I generally support the Commission's action to improve mutual fund disclosure. I generally support comments made by Morningstar and Vanguard Group. I further urge the Commission to minimize compliance burdens with the proposal, and minimize paper filings. Summaries are helpful for investors, as long as full portfolio holdings are available online. If concerns about front running still exist, I believe those can be discounted, per the Morningstar letter. I would also urge the Commission to engage its oversight into the area of undisclosed fund costs, namely, so-called "revenue sharing" fees that funds give to broker-dealers and other vendors. Concerns about investor understanding of fees are legitimate, yet a significant swath of revenue-sharing fees that essentially buy shelf space on a dealer's shelves remain completely undisclosed. I believe this is contrary to law and contrary to NASD rules that such arrangements must be specifically disclosed. These hidden fees impact investors at least indirectly, and probably account for some of the "stickiness" in funds' high operating costs. For example, I believe low-ongoing expense funds sold through brokers are at a disadvantage because their lower expenses make it difficult to compete-it is difficult to afford these hidden payoffs. Individual broker payout schemes in some instances penalize the rep for selling the lower-cost product, even though the disclosed loads and 12b-1s appear the same for the low-cost fund as they do for the high-cost fund; in other words, a broker looking at a prospectus would assume the same level of compensation, yet end up penalized by his firm. The pressure to sell higher cost products harms investors. Hidden fees take many forms, including payments for "compliance," training and broker meetings as well as outright sharing arrangements. While the propriety of such payments can be debated, at the very least the Commission must force FULL disclosure. Surely funds managed under a wrap fee and subject to the Advisers Act should be disclosing any such fees. The Commission has reportedly been studying the revenue-sharing issue for several years, but with no apparent result. This would be an opportune time to take action.
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