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Wednesday, May 29, 2002

ANOTHER PERSPECTIVE
Fink Under Attack

by: Tony Pennino

Last week, Matthew Fink, president of the ICI, called for the elimination or reduction of 13-F filings at his institute's Washington conference last week. 13-Fs are frequently used by firms and investors to get the jump on when stocks will be on the move.

Not everyone, though, is happy with Fink's call to arms on 13-Fs. One who didn't like the ICI's tune is Charles Jaffe, columnist for The Boston Globe. He wrote in today's edition of that paper, "But Fink raised the stakes last week, by calling for a 13-F rollback and adding the following: 'We urge the SEC not to increase the opportunity for abusive trading by requiring more frequent portfolio disclosure by funds.' Bzzzzt. Wrong answer."

Jaffe believes that this is the time for more disclosure not less. Jaffe is of the opinion that mutual fund firms only pay lip service to the individual shareholder's needs. The columnist calls for more regular disclosures: on a quarterly and perhaps even monthly basis. Suggesting that firms could disclose on the web, Jaffe indicates that he understands the costs of mailing documents to investors.

Jaffe also writes, "All this being said, it's important that the fund industry and the regulatory community realize that they can't have it both ways. They can fix the flaws of the regulatory disclosure system as it exists today, but not at the cost of giving investors less information about their mutual funds. If investors really do come first, the fund industry needs to treat them like owners and not like the reason why they have to file paperwork that they consider annoying and difficult."

Is Jaffe's article just one lonely voice in the wilderness or a part of a growing roar from individual investors, industry watchers, and government regulators? To be on the safe side, the industry should assume it is the latter.

The mutual fund industry should take a proactive approach now. It's image has been tarnished in the past couple of years, and by events and circumstances not all of its own doing: the downturn in the economy, Enron and other similar scandals, controversies over executives' and board members' salaries, and (of course) issues concerning disclosures. Investors' faith in the industry can disappear quickly; for every Charles Schwab -- who took a significant pay cut last year -- there seem to be ten Larry Lassers. It's time to go out and win the hearts and minds of the individual investor.

How to do this? Well, Jaffe may just have the key. Certainly, call for an end to 13-F filings but recommend something concrete to take their place. Disclosure that allows clients to know what equities are being held and what equities are not without giving the heads up to those who might trade on this knowledge will be beneficial to both individual investors and fund complexes.

Further, take a page out of the separate account business playbook. In that sector, the folks in portfolio management have to interact with investors on a fairly regular basis. Now, to do that on a similar level in the mutual fund biz would be difficult if not impossible, but a channel for dialogue needs to be found. If investors interact in some meaningful way with those who pick and choose the equities, then that will create a more loyal customer base.

At this critical time, the mutual fund industry must not hide its head in the sand. It must address investor concerns in an effective and meaningful way. And one such way right now means regular disclosure.

Jaffe's article is available by following this link

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