The U.S. Senate Committee on Governmental Affairs, Subcommittee on Financial Management, the Budget, and International Security, held a hearing yesterday entitled “Oversight Hearing on Mutual Funds: Hidden Fees, Misgovernance and Other Practices that Harm Investors.” You can access all of the testimony at the hearing at this link. From Senator Fitzgerald‘s opening remarks at the hearing:

The mutual fund industry is indeed the world’s largest skimming operation – a $7 trillion trough from which fund managers, brokers and others insiders are steadily siphoning off an excessive slice of the nation’s household, college and retirement savings.

Isn’t it special that Congressmen and Senators have set up a separate mutual fund deal for themselves where no skimming is allowed? Sad to say, retirement investing appears to be yet another instance in which federal employees get a great deal, but everyone else gets the shaft. A Senator or Congressman or a member of the SEC staff who participates in the TSP [i.e. Thrift Savings Plan] will have more money at retirement than a member of the general public who invests the same amount for the same number of years in a comparable private sector index fund. That isn’t right. In fact, it’s outrageous.

This committee and this Senate should not rest until Congress has given every American the same retirement savings opportunity that it’s given itself.

As we commence this oversight hearing, I would like to note that the Senate Committee on Banking, Housing and Urban Affairs, the authorizing committee which will ultimately decide questions of mutual fund industry reform, has scheduled a series of legislative hearings to examine the mutual fund scandal and the merits of various reform proposals. I commend the leadership of Chairman Shelby and Ranking Member Sarbanes, and look forward to continuing to work with them on this issue in the coming months.

According to Fitzgerald, the special mutual fund system available to federal employees through the TSP charges only 11 cents per $100 invested compared to 63 cents per $100 for the average private sector S&P 500 index fund.

Eliot Spitzer’s comments at the hearing are highlighted in the news this morning:

• From Reuters: “Spitzer defends return of fund fee overcharges.”
• From CNNMoney.com: “Spitzer defends fund fee tactics: NY Attorney General says returning money to investors who shouldn’t have paid isn’t rate setting.”
• From the Washington Post: “Spitzer to Push Fund Reform: Senate Panel Hears Criticism of Advisory Fees.”

From the Dow Jones Newswire via the Wall Street Journal (no link available): “Republican Senators At Odds On Mutual Fund Fee Regulation.” According to the article, Senator Fitzgerald plans to introduce sweeping legislation in a few days aimed at reducing fees. Senate Banking Committee Chairman Richard Shelby, R-Ala., is not sure new laws are needed and does not want Congress setting fund fees.

Quote of Note from the article: “Fitzgerald, who chairs a Senate Governmental Affairs subcommittee, said investors should have access to low-cost mutual funds, similar to what is available to members of Congress and their staff through the federal Thrift Savings Plan. “Hopefully, we can give the rest of America as good a mutual fund deal as we give ourselves,” Fitzgerald said at a subcommittee hearing Tuesday on mutual funds. He said his approach could save Americans billions each year in fund fees. Shelby welcomed Fitzgerald’s involvement, but said any legislation on mutual funds will be driven by the Banking Committee and would focus on fee disclosure, not setting fees.”

Also, Paul F. Roye, Director for the Division of Investment Management for the SEC, spoke at a PLI conference yesterday entitled “Understanding Securities Products of Insurance Companies – 2004.” You can read his comments here in which he discusses the SEC’s enforcement initiatives pertaining to the mutual fund industry.

UPDATE: The Philadelphia Inquirer has a good article today discussing the hearing: “The fight over mutual-fund fees.“

Also, from the hearing yesterday: “Mutual Fund Whistleblower Tells of Beating.” (From the Washington Post. Thanks to Benefitslink.com for the pointer.)