Mutual Fund Reform May Elude Congress

Edward Siedle, a former SEC attorney who is now president of Benchmark Financial Services, a Florida company that helps pension funds select investment consultants, says individual investors have already paid for years of abuses at the hands of the fund industry.

"I strongly believe that this is something that should be decided in Congress," he says. "I'm fairly confident that the SEC doesn't have the authority to do it. Even if they had the conviction, they aren't empowered to enact the kinds of changes and prohibitions that would be required to clean up the mutual fund industry. I really don't think there's any doubt about that."

Wednesday's witnesses before the committee include Sens. Susan Collins (R., Me.) and Peter Fitzgerald (R., Ill.), sponsors of competing bills before the Senate, and Paul Haaga, chairman of the Investment Company Institute, the mutual fund trade group.

They are the final group to precede SEC Chairman William Donaldson, who is scheduled to testify on April 8 in the last committee hearing on reshaping the mutual fund industry.

When those hearings end, the next question is whether Congress or the SEC will take the lead in making proposed reforms official. Laws passed by Congress, rather than rules made by the SEC, would likely impose tougher restrictions on industry practices such as soft-dollar payments but might take longer to be put in place.

But supporters also worry that the laborious nature of the legislative process means the chance for major reform will get swept away as Washington is consumed by the presidential election campaign.

The House of Representatives passed a bill in November that addresses most of the mutual reform issues; four bills are now before the Senate, and a fifth, likely sponsored by Banking Committee Chairman Sen. Richard Shelby (R., Ala.), is expected after the hearings.