NASD CEO Richard R. Glauber
challenged the SEC's efforts at simplified fund disclosure in a speech
to mutual fund industry executives Thursday morning. The NASD's top regulator instead pushed his own organization's Prospectus Plus
solution for investor disclosure. He also called for increased regulations on fund competitors to create a more level playing field at the point of sale.
Glauber told his audience at the ICI's General Membership Meeting in Washington, D.C. that the SEC staff is likely to repropose the Commission's one page disclosure sheet for the point of sale. That sheet focuses on fund costs, fees and conflicts. The NASD two-page disclosure would add information about a fund's investment objective, strategies, performance and risk to a second page.
"The SEC has properly focused on improved point of sale disclosure for mutual funds," said Glauber. He added that "It's fine as far as it goes, but we think it's time for the SEC to go further."
Glauber also took the time to praise the industry in a speech that pointed a favorable regulatory path for fund firms.
"Mutual funds are not just another product on the shelf," said Glauber. "Mutual funds are, quite simply, a great product."
Glauber also made light of his speech's title: "Are Regulators Done with the Mutual Fund Industry?" Other proposed titles, he joked, were "We're Not Done with You Yet" and "We're Just Getting Warmed Up."
"We thought those might not go down too well," he joked, before answering the question raised by the talk's actual title.
"The worst of it, from the fund industry's perspective, is likely to be over," Glauber said in reference to the regulatory investigations that have hit the industry since Eliot Spitzer lodged his initial complaints in September 2003.
"The tide of ever-increasing regulation and enforcement seems to have crested." He did not claim, however, that regulation itself would decrease. "NASD will continue to be a vigilant regulator," Glauber said. "Being king of the hill draws a lot of attention to you, and subjects you to harsh criticism." He even explicitly mentioned the industry scandals of recent years as justification. "We were left with no choice but to do everything we could to protect investors and increase their confidence."
Several audience questions asked for more clarity in regulation and enforcement, but Glauber insisted more on broader regulation, what he calls "principal-based" rules. "You can't have it both ways," Glauber said. "I believe we're better off moving towards a principal-based rules regime."
In discussing disclosure, Glauber mocked the standard prospectus each fund files with the SEC. "[The prospectus] is a lousy read, about as fun to read as the Federal Register
," Glauber said after noting that "It has no pictures."
Finally, in citing the heavy regulatory pressure on the mutual fund industry, Glauber suggested leveling the playing field by increasing regulation on the industry's competitors, such as ETFs, separate accounts, and various kinds of annuities. "Let's not limit the Profile Plus to mutual funds," Glauber said. "An investor should be sold a security because it's right for him or her, not because it's easier to sell."
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