Investment legislation approved by Congress and signed into law by President Clinton in October has a "bull market" flavor, analysts say, meaning there's a lot in it for the benefit of mutual fund companies but not too much for investors.
"It basically deals with things the fund industry wanted," says Pat Regnier, an editor who has tracked the bill for the Morningstar Investor newsletter in Chicago.
The National Securities Markets Improvement Act of 1996 streamlines fund company regulations, especially state rules.
Regnier figures most investors have been too busy making money in the current market to press for changes affecting their mutual funds. If fund prices were falling, things might be different.
For example, says Regnier, the legislation fails to address disclosure of offbeat investments that certain funds make, more disclosure of the risks they're taking, or limits on high or duplicative fees.
"The whole issue of 12b-1 fees and different load structures is incredibly confusing," he says.
Perhaps the meatiest part of the legislation deals with the review and registration of mutual funds by individual states. Up to now, any state could block the sale of fund shares within its borders if local regulators objected to its investment procedures, marketing tactics or other practices--or if the sponsoring fund group failed to pay state registration fees.
Fund groups had long complained that state-by-state reviews were duplicative, and they objected to having to pay fees to as many as 50 state agencies plus the District of Columbia and U.S. territories such as Puerto Rico.
The new legislation offers a compromise. State officials will still collect fees from mutual funds, which are paid for by shareholders, thus retaining a key source of financing for their operations, but the U.S. Securities and Exchange Commission will take over the review process.
"States will no longer be re-reviewing prospectuses that have already gone through the SEC," says Bob Posen, general counsel at Fidelity Investments in Boston. (Prospectuses are disclosure documents that fund companies must provide to shareholders and other interested parties.)
California is among the states that have their own regulations on mutual funds sold in the state, including limits on options that could be in a portfolio.
The new legislation will make it easier for fund groups to market their products throughout the country, without having to attach stickers to their prospectuses explaining risks in some states.
"I believe strongly that the states have added value in the review of funds," says Dee Harris, chief securities regulator in Arizona and a former president of the North American Securities Administrators Assn. "But of all the securities offered in the United States, mutual funds are the ones that get the most federal review, so if you wanted to find an area to reduce regulatory redundancy, this would be it."
Among other provisions in the law are eased regulations for when funds launch "funds of funds"-- portfolios that invest in other funds--especially when a family packages some of its own mutual funds into separate portfolios.
But efforts to mix and match funds from unrelated groups may still face lengthy review.
Also, the SEC was given more power when it comes to inspecting fund records, and it can ban words such as "guaranteed" or "insured" in fund names where inappropriate.