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Levitt Seeks Fund Statement Change

April 21, 1998|From Bloomberg News

Securities and Exchange Commission Chairman Arthur Levitt said mutual fund companies should personalize statements sent to customers by providing return and cost figures tailored to each customer's investments.

Levitt made those remarks in a speech to brokerage lawyers and compliance officers at the Securities Industry Assn. conference in Scottsdale, Ariz. He also said that securities industry regulators should consider banning brokerages' use of bonuses and other incentives to lure brokers from other firms.

The proposed change in mutual fund statements would affect customers who make investments or withdrawals during the quarterly or annual reporting period.

One fund company, American Century Investments in Kansas City, Mo., said Monday that it intends to unveil within a year an account statement with an individualized performance report. Levitt praised those plans and urged the fund industry to follow suit. "Very, very few have provided this information," he said. "That strikes me as shortsighted."

Levitt said he would not seek to require customized account statements but that he will monitor the industry's practices. "I expect firms to respond quickly to the challenge," he said.

In the quarterly and annual reports describing a fund's performance, fund companies assume a one-time investment at the beginning of the period. However, many individuals, either on their own or through 401(k) accounts and individual retirement accounts, invest or withdraw funds in the middle of a quarter, and often have more than one such transaction.

The Investment Company Institute fund trade group declined comment.

On the brokerage incentives, Levitt said he has asked the National Assn. of Securities Dealers to examine whether upfront bonuses and temporarily higher commissions--known as "accelerated payouts"--create inherent conflicts of interest for newly hired brokers.

Levitt, while praising Wall Street for some improvement in its pay practices, said not a single brokerage discloses the upfront bonuses and temporarily higher commissions paid to brokers hired from other firms.

Customers should be told that quality of service may not be the only factor behind their broker's asking them to follow him to his new firm, Levitt said.

If the NASD finds the potential for conflicts of interest, Levitt said, it should consider requiring firms to disclose these payments to customers--"or, if there is no other choice, banning them altogether."

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