Anyone wondering whether the regulators had lost interest in mutual fund marketing need wonder no more.
With the SEC and NASD recently levying more than $80 million in fines to five firms (for transgressions related to revenue sharing and B shares), mutual fund sales practices officially sit on the front burner. And though the recent regulatory actions, which involve Putnam, Citigroup, J.P. Morgan Chase and American Express Financial Advisors, might seem significant, legal experts say they are probably just the leading edge of a new wave of punishments.
“I don't think they're just trying to make an example out of one or two firms in the hopes that everyone gets the message,” says one industry lawyer who represents smaller broker/dealers and preferred to speak anonymously. “There's probably going to be more to come.”
At last count, the SEC was investigating revenue sharing at the 15 largest b/ds, but it also has been conducting “revenue-sharing sweeps” at the independents, the lawyer says.
True, only a handful of companies have been charged since the SEC began its investigations into mutual fund sales practices in 2003. But regulatory actions related to mutual funds are starting to gather steam now. For instance, proposed point-of-sale disclosure rules, which could require b/ds to provide additional details on B shares and revenue sharing, are expected to be finalized this year. Some b/ds, seeing the writing on the wall, have already started to provide additional disclosures on their Web sites.
The good news — if there is any — is that at least one lawyer does not believe the settlements would influence whether investors would do business with the affected firms. “These settlements generally have minimal impact on the public,” says Bill Singer, a New York-based attorney with Gusrae Kaplan & Bruno who represents small- and mid-sized b/ds (and who also writes a column for this magazine). “The public is sort of numb to this already.”
