Securities and Exchange Commission Historical Society

The Bright Image: The SEC, 1961-1973

The "Go-Go" Years

Mutual Fund Reforms

“Finally, a breath of fresh air. After being clobbered by the press time and time again for seven or eight long years, your apparent reluctance to completely back the S.E.C. in its attack on planned ownership of American industry and business through mutual fund investment companies has restored our faith in our great society.”
- February 17, 1967 letter from William B. Rudd, Investment Planned Corporation, to President Johnson

The reform of the mutual fund industry was another of Cohen's important objectives, albeit less successful.

The SEC had commissioned a study of the mutual fund industry in 1958 by the Wharton School of Finance and Commerce. The Wharton School Study of Mutual Funds examined the administration of the Investment Company Act, concluding that fees paid by the funds to investment advisors bore little relation to the cost of performance of their services or to investment results. The report, completed in 1962, made no legislative recommendations but suggested that the industry was in need of reform.

Under Cohen, the SEC took a hard look at problems in the mutual fund industry. Cohen noted that the mutual fund industry was beset with opportunities for self-dealing and conflicts of interest between fund management and shareholders, and that most mutual funds exhibited "the possible absence of arm's-length bargaining between fund management and investment advisers."(18)

In 1966, the SEC published the findings of an internal study entitled "Report of the Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth." The recommendations of the report, intended to be a springboard for legislation, instead attracted wide criticism about the SEC's competence in economic regulatory matters. The report, critics claimed, failed to make the case that sales loads and fees were higher than they should be if there was effective competition.

In several key areas, the SEC approach, still suffering from the lack of an overall theory of regulation, failed to address the cause of the non-competitiveness in the mutual fund market and the economic implications of proposed legislative changes to investors and the industry. The SEC, which had long and successful experience in regulating fraudulent practices, was less effective in addressing industry problems that arose from market structure.

The failure of the SEC legislative proposals to address the economic implications of regulation of the mutual fund industry, coupled with a strong lobbying effort against the mutual fund legislation, resulted in watered-down legislation which failed to include the SEC's reforms on excessive mutual funds fees charged to investors. The SEC did persist over time in addressing the issue of sales loads.

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Footnotes:

(18) Seligman, Transformation, 366.


Related Museum Resources

Papers

June 30, 1955
image pdf (Government Records)
May 29, 1958
image pdf (Government Records)
April 25, 1962
transcript pdf (Government Records)
July 9, 1962
image pdf (Government Records)
July 25, 1962
image pdf (Government Records)
August 1962
A Study of Mutual Funds, Prepared for the Securities and Exchange Commission by the Wharton School of Finance and Commerce (The Wharton Report)

(Government Records)

September 29, 1962
image pdf (Government Records)
April 8, 1964
image pdf (Government Records)
June 1964
document pdf (Courtesy of Paul Gonson)
June 2, 1965
image pdf (Government Records)
November 23, 1965
transcript pdf (Courtesy of the Lyndon B. Johnson Library and Museum)
December 17, 1965
image pdf (Government Records)
December 30, 1965
image pdf (Government Records)
May 17, 1966
image pdf (Government Records)
November 17, 1966
image pdf (Government Records)
November 18, 1966
image pdf (Government Records)
November 29, 1966
transcript pdf (Courtesy of the Lyndon B. Johnson Library and Museum)
December 2, 1966
Report of the U.S. Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth; Report of the Committee on Interstate and Foreign Commerce, Pursuant to Section 136 of the Legislative Reorganization Act of 1946, Public

(Government Records)

December 20, 1966
image pdf (Government Records)
January 4, 1967
image pdf (Government Records)
January 23, 1967
image pdf (Government Records)
January 31, 1967
image pdf (Government Records)
February 1, 1967
image pdf (Government Records)
February 4, 1967
image pdf (Government Records)
February 17, 1967
transcript pdf (Courtesy of the Lyndon B. Johnson Library and Museum)
February 24, 1967
image pdf (Government Records)
May 1, 1967
image pdf (Courtesy of the Library of Congress)
August 14, 1967
image pdf (Government Records)
October 17, 1967
image pdf (Government Records)
March 1, 1968
image pdf (Courtesy of Stephen A. Zeff)
March 25, 1968
transcript pdf (Courtesy of the Lyndon B. Johnson Library and Museum)
July 28, 1968
image pdf (Government Records)
September 16, 1968
transcript pdf (Government Records)
February 19, 1969
image pdf (Government Records)

Photos

October 5, 1964

(standing, left to right) James E. Newton, O.H. Allred, Thomas B. Hart, Alexander J. Brown, Jr., Llewellyn P. Young, Philip E. Kendrick, William E. Green, Arthur E. Pennekamp and Donald J. Stocking; (seated) Hamer Budge, Byron D. Woodside, Manuel F. Cohen, Hugh F. Owens and Francis M. Wheat

Oral Histories

07 September 2003

Meyer Eisenberg

12 June 2007

Alan Rosenblat

Programs

29 March 2005

Developments in the Mutual Fund Industry - Money Market Funds

Moderator: Martin Lybecker

Presenter(s): John McGonigle, Robert Plaze, David Silver

22 March 2005

Developments in the Mutual Fund Industry - Insurance Companies

Moderator: Richard Phillips

Presenter(s): Gary Cohen

08 March 2005

Developments in the Mutual Fund Industry - Banks

Moderator: Matthew Fink

Presenter(s): Michael Bleier, Martin Lybecker

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