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Big Firms Could Benefit From Stricter Rules


As legislators and regulators prepare to adopt more stringent regulation governing the mutual fund industry, some investment advisors will benefit from such rule changes while others will be harmed, according to Fitch Ratings.

"Firms with strong performance records, good compliance risk management systems, sufficient asset under management to absorb additional expenses, and the ability to generate new business independently will be best equipped to endure a stricter regulatory framework," said David Spring, director of the Chicago-based ratings agency.

On the other hand, firms that rely heavily on retail mutual fund management, have poor performance records, generate most new business through third-party channels, or have weak compliance management systems will be more vulnerable.

The SEC and New York Attorney General Eliot Spitzer have teamed up to impose stiffer penalties and fines and have forced some firms to lower advisory fees. While these fee reductions are unlikely to have substantial impact on the profitability of most firms in the industry, those firms whose ratings are already under pressure for other reasons may be more susceptible to rating volatility, Fitch said.

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