Buying fund shares may get easier Investors should be able simply to clip coupons and mail in checks, SEC says

March 19, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Clipping a coupon and writing a check might be all that investors will have to do in the future to buy shares of mutual funds, the Securities and Exchange Commission decided yesterday.

The proposed rule would allow mutual fund shares to be sold through newspaper and magazine ads or through direct mail. Now, fund shares can be bought only through a broker or by contacting a fund, requesting a prospectus and signing up.

The SEC proposal, which is open to comment for 90 days, was approved 4-0 by the commission, meaning that it has a good chance of receiving final approval in June.

In making the change, commission members said they thought it was unfair that purchasers of no- or low-load mutual funds, which charge no or little commission, were forced to wait before being able to buy shares in a fund, while investors buying through brokers, who usually charge higher commissions, could sign up right away.

At the same time, commission members said the prospectuses were of little use to consumers because they were often difficult to understand. A clearly written -- and legally binding -- newspaper ad or direct-mail brochure would be more informative than a turgid pamphlet written by a lawyer, the commissioners reasoned.

"Historically, I think that prospectuses have been viewed as an all-powerful pill that, once received by investors, fully informs them about their investment," said SEC Commissioner J. Carter Beese, formerly an investment banker at Alex. Brown & Sons Inc. in Baltimore. "In truth, prospectuses are only as valuable as their readers' ability to comprehend them."

Making the purchase of mutual fund shares more user-friendly has become an SEC priority because of the funds' exploding popularity. Uncertainty surrounding pensions and Social Security has forced people to plan ahead for retirement. But yields on money markets and bonds are too low to be attractive, thus driving money into potentially more rewarding mutual funds.

More than $1.5 trillion are invested in mutual funds, up from $350 billion in 1983.

Many in the fund industry welcomed the SEC's decision, though the acclaim was not unanimous.

"Our studies show that our investors do their homework," said Charles Vieth of T. Rowe Price Inc., the Baltimore no-load fund company. "We don't think they'll just clip a coupon spontaneously and invest."

Rather than inciting investors to part with their money, Mr. Vieth said, the ads would help consumers compare. He said the ads would show the fund's performance and costs, allowing a quick comparison with other funds. Those who want the prospectuses could always receive them, he added.

Others, however, said the cooling-off period between writing or calling for the prospectus and receiving it was not a bad thing.

Chrissy Snyder, a spokeswoman for the Janus Funds, said her company opposed the new rule. Indeed, she said, brokers should be required to give customers a prospectus.

"I don't think it hurts to have the time lag," said Ms. Snyder, whose company is one of the biggest no-load fund families.

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