S.E.C. SAYS MUTUAL FUNDS CHARGE 'EXCESSIVE' FEES; ASKS CONGRESS FOR CURBS; SALES COST CITED Protection of Public Stressed--Industry Cool to Changes
SEC issues special rept to Cong on mutual funds; holds almost all funds charge 'excessive' fees, urges legis to protect pub from 'unjustified' costs; says sales comms are 'much higher' than those charged on purchase and sale of ordinary stocks and money mgt fees are 'substantially higher' than those charged by banks for similar services; recommends outlawing further sales of 'front-end load' funds (in which 1/2 of investor's 1st-yr payments are diverted for sales charges) and mutual fund holding co plans (which invest in shares of other mutual funds and whose sale is still illegal in US); holds these 2 types of plans of substandard merit and extremely high cost; says funds, despite its criticisms, are still 'sound and useful investment medium' and rept should not impair pub confidence in any fund; stresses that holders of front-end loan plans should not cash them in just because comm urges no more be sold; makes no particular criticism of closed-end investment cos or 'no-load' funds (sold without sales charges); SEC would also bar sales comms above 5% (or 4.76% in indus terms), ban additional charges imposed by some funds for reinvesting earned divds, require that mgt fees be 'reasonable' and that lower comm charges be made on large transactions so that fund shareholder can benefit from econ operations; says it already has statutory authority for last; details disadvantages of front-end load plans, noting their incentive to high-pressure selling, penalty for being unable to complete 10-12-yr plan, and diminution of ultimate value compared to level-load funds; holds latter need regulation to keep charges at acceptable levels; asks discretionary authority to change recommended 5% maximum sales comm; does not ask repeal of price-fixing provision relating to sales charges in '40 Investment Co Act; finds funds that manage own portfolios do so at lower cost than separate investment advisory cos; also finds that funds do not generally try to interfere with cos whose stock they hold, that their buying and selling patterns match gen pub's, but notes increasing strain that size of funds puts on mkt; most of rept's major proposals will require legis which SEC hopes to have drafted early in '67; rept took 4 yrs to draft
