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Financial Reform: What to Expect

An insider speaks on ways to restore investor confidence.

Mercer Bullard, a professor at the University of Mississippi Law School, is the founder of Fund Democracy and serves on the Securities and Exchange Commission's newly created Investor Advisory Committee.

Do we need a Financial Product Safety Commission?
There's a huge vacuum in consumer protection as it applies to credit cards, mortgages and other bank-related products. Banking regulators have never been in the business of protecting consumers, and there's no reason to believe they can suddenly develop those skills.

On the investor-protection front, the SEC has historically done pretty well but has fallen down on the job for the past decade. If I had to bet on an investor-protection agency, I'd bet that the SEC fends off the challenge to its jurisdiction.

What would you most like to see changed?
Better disclosure of mutual fund fees and improved regulation of sales practices. Fund fees need to be posted where investors will actually look at them -- not in a prospectus, but in a quarterly statement. And they should be disclosed in dollars.

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Brokers should also state, in dollars, how much they get paid for selling fund shares and the differential they receive for selling shares of one fund or another. Funds are exempt from the rule that applies to every other securities transaction -- that brokers show on the confirmation what customers paid in commissions.

Do money-market funds need to be made over?
They've been extraordinarily successful, with only two funds losing principal over three decades. We should continue the federal insurance program for money-market funds because we know now that a run by depositors is a real risk. The insurance program is a proven preventive measure, but it's almost fraudulent in its operation because it covers only assets invested as of September 19, 2008. Much of the new money flowing into funds has been attributed to the new insurance but is not covered by that program.

Will 401(k)s change?
Reduced employer contributions will put more pressure on our pension system. I'm not sure we have the political will to fix the problem, but the solution is a mandatory, private retirement system, separate from one's employer. There would be a range of investments, risk would be limited, and benefits, to some extent, would be annuitized.