In September 2005, Peter J. Wallison of AEI and Robert E. Litan of the Brookings Institution began a study to evaluate the current regulatory framework for mutual funds. At the close of the study, the scholars published their findings and recommendations for change in Competitive Equity: A Better Way to Organize Mutual Funds. Ultimately, the study determines whether there is a better way to bring collective investment to American investors.

When Congress passed the Investment Company Act of 1940--under which the Securities and Exchange Commission regulates mutual funds and other investment companies--mutual funds were a rarity, the industry was a fraction of its current size, and most investment companies were managed by corporate boards instead of outside investment advisers. Today, however, the mutual fund industry manages over $9 trillion in assets spread across nearly 8,000 funds. It would not be surprising, then, to discover that a law passed sixty-five years ago is now out of date, and that the 92 million individual investors in mutual funds and other investment companies are paying the price for outdated regulation.

Over the course of this study, Wallison and Litan hosted a series of eleven conferences dealing with various economic and regulatory issues surrounding the mutual fund industry. Panelists and other particpants included current and former SEC officials, economists, fund managers and directors, lawyers, industry analysts, and experts in the regulation of collective investment vehicles in other countries. Some of the questions addressed include:

• What are the strengths of the current structure, in which mutual funds are corporations with outside investment advisers? What are its weaknesses?
• If there were no board of directors, how could conflicts of interest be addressed?
• Are independent directors capable of judging the value of an adviser’s services and thus the fee that should be charged?
• Does the industry have the flexibility under '40 Act regulation to respond to competitive challenges?
• Can regulatory changes improve investors' understanding of mutual fund performance and the yield on their investments, and how might this be done?
• How are collective investment vehicles regulated in other developed countries?

For more information, please contact Daniel Geary at dgeary@aei.org.
For media inquiries, please contact Veronique Rodman at vrodman@aei.org.