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Rating:Regulators, Not Competitors, are Keeping Fundsters Up at Night Not Rated 5.0 Email Routing List Email & Route  Print Print
Thursday, May 10, 2012

Regulators, Not Competitors, are Keeping Fundsters Up at Night

Reported by Sean Hanna, Editor in Chief

Regulators scare the top executives at Fidelity [profile] more than the competition. Ron O'Hanley, the man seen by many as the next in line for the top job at Fidelity Investments, told attendees at the ICI GMM that the industry needs to be engaged with legislators and regulators but warned that mutual fund leaders also need to keep their eye on their objective. Unanticipated costs and fallout from a raft of regulation is his worry.

O'Hanley was responding to a challenge from Capital Research's [profile] Paul Haaga, who wondered what after SMAs and ETFs would be the next product to "eat our lunch."

"I would have to name regulators," O'Hanley quipped in response, to the delight of the crowd.

Yet, even O'Hanley admitted that "there is a need for regulatory change."

"I think all of us would admit that, yes, there is a need for change," he clarified before warning that the mutual fund industry is facing "unparalled change" and that the change is coming in a rush that has "little regard for consequences, intended or otherwise."

Kenneth Olivier, chairman and CEO of Dodge & Cox [profile] and also on the panel, seconded O'Hanley's concerns, though he was less forceful in his words. Olivier said he is "sympathetic to what regulators are trying to do."

"They have monumental task and are understaffed," said Olivier. "They are very young."

Yet, he worried that "thousands of pages will come out of this task" and that it could take years to undo the unintended consequences of the changes.

Regulators' intent to change the rules of how money market funds operate and for commodity mutual funds to register with the CFTC have been a large portion of the official agenda of the 54th annual ICI GMM meeting, held this week at the Marriot Wardman Park in Washington, D.C.

Yet, the talk in the halls and networking events held around the annual meeting shows that marketing and distribution concerns weigh as heavily on the minds of many fundsters who made the trek to the nation's capitol.

The ICI has picked a high-profile fight with the SEC on the money market fund issue and with the CFTC on the commodity mutual fund issues. That fight has brought media attention to the issue, yet Cap Research's Haaga wondered if the attention would help or hurt the mutual fund industry's cause.

Haaga worked as a staffer at the SEC in the early 1970s.

He wondered at the change in stance caused by the recent skirmishes with regulators.

"We have never been the party of 'no'," Haaga mused. "We have been the party of 'this', 'not this'."

Haaga took the stage after a warm introduction by Ariel's [profile] Mellody Hobson and a standing ovation from the fundsters gathered for this year's ICI General Memberhip Meeting.

Haaga, a top executive at Capital Research in Los Angeles, is retiring from the ICI board this year. He joined the trade group's board in 1994.

Haaga moderated the conference's kick-off panel that featured Fidelity's O'Hanley, Dodge & Cox's Olivier, Schwab's [profile] Marie Chandoha and Morgan Stanley Smith Barney's Greg Fleming. The panel quickly dived into the issue of bond funds' continued dominence of investor flows and the ever-brewing debt crisis in Europe, before turning to the topic of regulatory reform and then to new products such as ETFs and their lack of personal twitter feeds. 

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