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Tough Talk at SIA Mutual Fund Conference

The SIA’s Mutual Fund Reform Conference, held in New York City’s Grand Hyatt Hotel on Tuesday, had an unexpected guest in the form of NASD Chairman and CEO Bob Glauber.

The SIA’s Mutual Fund Reform Conference, held in New York City’s Grand Hyatt Hotel on Tuesday, had an unexpected guest in the form of NASD Chairman and CEO Bob Glauber.

Glauber wasted little time in delivering his pointed message: “None of the offenses in my tenure at the NASD have been more disturbing than what has happened in your industry, the mutual fund industry,” he said. “It has been an embittering experience for investors. They tell us they think the deck has been stacked against them.”

Glauber was present at the conference because the scheduled speaker, the NASD’s head of regulatory oversight Mary Schapiro, had to scratch because of a death in the family. (Commenting on the speaker switch, SIA president Mark Lackritz said, “You know you’re powerful when you have to cancel an appointment and your boss fills in for you.”)

Glauber acknowledged that the NASD and the SEC have been thorns in the industry’s side, but he made no apologies for it.

“How long we stay on red alert depends on how quickly the industry—you—adopt a culture of compliance and transparency,” he said. “We are aware that more regulation means more consequences of burden, cost and intrusion for you. It is up to you to change that.”

Glauber’s remarks echoed those of morning speaker Roel Campos, an SEC commissioner, who blasted the mutual fund industry for trying to shift the focus of SEC regulation away from the people it was intended to protect: the investors.

“We all need to take a moment to focus on [the SEC’s] mandate,” Campos said. “The rules are designed to protect investors. The bottom line, the finances of broker/dealer firms and fund companies are, frankly, not our concern. This is not a situation that lends itself to a cost/benefit analysis. One cannot quantify the benefits of transparency.”

Currently, the NASD Task Force—headed by Glauber—is looking at three key elements of mutual funds: soft dollars, 12b-1 fees and revenue sharing. Glauber said the Task Force will release its recommendations on soft-dollar regulation “within the next three months.”

Though he wouldn’t get into details about the recommendations, he did drop hints, stating that soft dollars will not be banned, emphasizing that “they should pay for ideas, not physical office equipment.”

He also emphasized that the NASD “strongly suggests” the industry adopt their idea of a one-page document explaining to investors exactly what they are paying for.

“A single page is hardly an onerous requirement,” he said. “The NASD is not waiting for the industry to get its house in order. We want to help you understand and comply with our rules.”

Glauber declined to comment on 12b-1 fee and revenue-sharing status, saying the Task Force “hasn’t gotten around to that yet. I can’t possibly tell you where that’s headed.”

But it’s clear the NASD and the SEC aren’t slowing down their investigations. Far from it: “I’ve often said that when you follow the money in the market, you’ll find the next big fraud,” Campos said. “So there could be more coming.”

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