This Article argues that existing regulation of mutual funds has serious shortcomings. In particular, the Investment Company Act, which is based primarily on principles of corporate governance and fiduciary duties, fails to support and, in some cases impedes, market forces. Existing evidence suggests that retail investing behavior and the dominance of sales agents with competing financial incentives further weakens market discipline. As a solution, the Article proposes that funds should be treated primarily as financial products rather than corporations and, correspondingly, investors should be treated primarily as consumers rather than corporate shareholders. To implement this approach, the Article proposes the creation of a new federal agency that would develop standardized financial products coupled with corresponding disclosure principles. Sellers of retail products would be required either to conform their products to these standards or to explain material differences. The goal is to enhance market discipline while making retail funds less complicated and more understandable for individual investors.
Mutual funds, retail funds, Investment Company Act of 1940, financial services regulation, market interference, erosion of market discipline, retail investment behavior, sales agent incentives, consumer protection, standards, standardized financial products, material differences, disclosure
University of Pennsylvania Law Review
Fisch, Jill E., "Rethinking the Regulation of Securities Intermediaries" (2010). Faculty Scholarship at Penn Carey Law. 306.
Administrative Law Commons, Banking and Finance Law Commons, Business Law, Public Responsibility, and Ethics Commons, Consumer Protection Law Commons, Finance and Financial Management Commons, Law and Economics Commons, Sales and Merchandising Commons, Securities Law Commons
158 U. Pa. L. Rev. 1961 (2010)