The Right -- and Wrong -- Steps to Reform the Fund Industry

Regulators, politicians and at least one investing legend have recently turned their attention to problems they see in the mutual fund industry -- from excessive fees to ineffective boards.

They're a tad late.

These issues have been around for years. But the market's collapse and ensuing investor outrage have finally spurred this country's leaders to examine the fund business.

And now they're on the verge of taking this crusade too far. The fund industry has some obvious flaws that need fixing, but it does not need a major makeover. These well-intentioned reformers are turning some molehills into mountains.

Some of these initiatives do deserve your attention and should benefit you as a fund investor. The rest you can ignore.

Useful: Making Brokers Cough Up Rebates on Front-End Loads

Last week, regulators released a report that revealed brokerage firms have been routinely overcharging investors who buy funds that carry upfront sales charges. The more money you invest in a fund with a front-end load, the lower that sales charge is supposed to be. For example, an upfront sales charge of 5.75% could fall to 5.5% if you invest between $25,000 and $50,000 in a fund.

As it turns out, these discounts were not being passed on to many investors who were buying load funds. The report found that almost one in three transactions that were eligible for discounts didn't get one.

The regulators insist that those investors will get reimbursed. Plus, they are continuing to study the problem and promise to punish those brokers who were intentionally overcharging their customers.

Catching and policing this problem can only help investors. With the proliferation of load funds over the past few years, the fund industry has turned into a swamp of confusing share classes and purchase options. More than one third of investors now buy funds from a broker.