Mutual Funds Upset About Regulations

NEW YORK (TheStreet) -- The House Financial Services Committee is scheduled to take action this week on new financial regulations that single out mutual fund products, a step that could impact mutual fund companies like Fidelity, Federated(FII Quote) and Vanguard.

The Investor Protection Act of 2009 would allow the Securities and Exchange Commission to create new requirements for the type of information that fund companies have to divulge before selling mutual funds to investors. The new legislation would amend the Investment Company Act of 1940.

While additional disclosures could be beneficial, and even necessary, for investors, the burden to supply them would fall squarely on mutual funds. The risk is that brokers and investors will choose less regulated products with fewer requirements.

Both mutual fund managers and investor protection groups are questioning the additional regulation. "I don't know why mutual funds are continually picked out for higher levels of disclosure," noted Paul Frank, manager of the ETF Market Opportunity Fund(ETFOX Quote), a mutual fund that utilizes ETFs.

"The hoops that we have to jump through already are nearly too burdensome, and now to move the bar higher just doesn't make sense," Frank added. "I guess the Congress doesn't owe their seats to anyone running a mutual fund, so they are throwing more regulations at us to make the public think they are being protected."

In an interview with Investment News, Barbara Roper, director of investor protection for the Consumer Federation of America, noted that, "there's not a reason in the world why you ought to single out mutual funds." She also said that "if pre-sale disclosure is a good idea, it's a good idea for all the products and services that brokers recommend."