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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) - Get Federated Investors, Inc. Class B Report

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

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, 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."

Other financial products, such as annuities and separately managed accounts, would not be subject to the "pre-sale disclosure rules" currently being debated. The new legislation would require mutual fund companies to provide prospective purchasers of mutual funds with specific information or documents before the purchase of such funds.

Currently, fund prospectuses are provided to customers upon the completion of a transaction. New legislation suggests that it could be necessary for investors to be provided with a summary prospectus and disclosure showing the costs of a fund in a comparative context could be necessary before purchase.

While additional disclosure and increased education is good for investors, the new process could be onerous for mutual fund companies. Pre-sale disclosure requirements could slow down the investment process and encourage brokers and investors to utilize other, less regulated, investment alternatives.

Take, for example, an investor choosing between an open end S&P 500 mutual fund like the

Vanguard 500 Fund

(VFINX) - Get Vanguard 500 Index Inv Report

and the

SPDR S&P 500 ETF

(SPY) - Get SPDR S&P 500 ETF Trust Report

. Both funds share many of the same top holdings, like

Exxon Mobil

(XOM) - Get Exxon Mobil Corporation Report

,

Microsoft

(MSFT) - Get Microsoft Corporation Report

,

General Electric

(GE) - Get General Electric Company Report

and

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. Report

. VFINX has a low expense ratio of 0.18% while SPY has a gross expense ratio of 0.10%.

If new regulation makes it more complicated to purchase shares of mutual funds like VFINX, more investors may seek out alternatives like SPY.

While it is important for regulators to keep finding ways to increase investor education and protection, the standard should be applied across the board. Currently, financial products are managed by an alphabet soup of regulators and a wide range of rules.

If the current "pre-sale disclosure" regulation before the House Services Committee passes, mutual funds may be singled out unfairly and suffer as a result.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion did not have any positions in the equities mentioned.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.