The Good, Bad and Criminal Among Mutual Funds

First, the bill would require that a fund's expense ratio include portfolio transaction costs. Including commissions in expense ratios will drive down portfolio turnover, because many funds will otherwise appear too expensive to survive. And it will put the spotlight on soft dollars.

Second, the bill requires that the transaction confirmation show how much the broker got paid for pushing the funds. Studies have shown that price transparency spurs competition. If investors saw on confirms the actual dollar amount the broker was being paid, there would be more competition. Showing sales commissions on confirms would have a strong depressing effect on sales compensation.

The relative savings would be substantial. Spitzer's settlement will likely run in the hundreds of millions, with total losses resulting from stale pricing abuses running less than $1 billion. The two measures in the Baker bill would result in more than a billion dollars saved every year.

8. What are the red flags for investors looking to see if their fund families are engaging in dirty tricks?

Investors should be looking for two things: The quality of a fund firm's shareholder services and their fees. Regarding fees, there's no reason to even think about investing in a fund that has an above average expense ratio.

And funds that have good services are likely to have similarly effective compliance systems. Investors would be well-served by reconsidering their investments the funds that have been named in these complaints. Investors should not invest with fund managers that are brought up on charges and are convicted or settle. It astounds me that people still invest in the Heartland funds -- especially fiduciaries of employee benefit plans, who have a responsibility to serve their clients' best interests and may be personally liable for losses resulting from any further fraud that they should have anticipated.

9. So many of these fiduciaries are exposing themselves to legal repercussions by continuing to invest in these funds?

Yes, it's once burned, twice liable. There was no reason to think before the Spitzer allegations that Bank of America(BAC Quote) would have allowed late trading and other abuses. But to invest in any NationsFunds now, you'd be ignoring explicit warning signs.

10. What fund firms do you trust with your money?

Vanguard, Fidelity, American Funds and T. Rowe Price(TROW Quote) and TIAA-CREF are the big firms at the top of my list -- although I use only two of them.

If you limited yourself to those five fund firms, I don't think you'd go wrong.