May 20, 1997
TO: BOARD OF GOVERNORS No. 32-97
RE: SEC RESPONSE TO CONGRESSMAN MARKEY
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As reported at the May 7 Board of Governors Meeting, Congressman Edward Markey
transmitted a series of questions to SEC Chairman Arthur Levitt following a recent
authorization hearing. The thirty-five questions, which covered a broad range of topics,
included three questions on mutual funds, and two on investment advisers. Enclosed are
Chairman Levitt’s responses to the questions concerning mutual funds and investment
advisers.
Mutual Funds
The questions on mutual funds concerned fees and expenses. Chairman Levitt’s
response emphasized the strengths of mutual fund disclosure and the importance of
shareholder education. He observed that "fund directors generally are conscientious and
thorough in their evaluation and annual approval of ... advisory contracts and ... fee
arrangements." The response also noted the failings of published data about mutual fund
expenses that do not take into account changes in the load structures of mutual funds over
time.
Investment Advisers
With regard to investment advisers, Congressman Markey requested an update on the
SEC’s proposal to enhance adviser disclosure of soft dollar practices. Chairman Levitt noted
that the Division of Investment Management has determined not to recommend that the
proposal be adopted, due to concerns that the proposed disclosure would not be useful to
investors and could harm advisers competitively. Another question related to the
Commission’s proposal to codify its long-standing interpretations regarding an investment
adviser’s suitability obligations. The response stated that the rule proposal has not been
withdrawn, and noted that failure to adopt the rule does not diminish an adviser’s obligation to
render suitable advice to its clients.
Matthew P. Fink
President
Enclosure