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SEC Comes Down Hard on Directed-Brokerage Pacts


The Securities and Exchange Commission has issued an adopting release that formalizes an amendment to Rule 12b-1 that prohibits funds from selecting broker/dealers for portfolio transactions based upon their sales of mutual funds. Fund companies must comply with the order by Dec. 13. Funds are not banned outright from choosing a broker/dealer that sells its funds to execute portfolio trades. Instead, the SEC requires that funds ensure selling agreements do not influence that decision.

"The amendment permits a fund to use a selling broker to execute transactions in portfolio securities, but only if the fund or its advisor has implemented policies and procedures designed to ensure that the selection of selling brokers for portfolio securities transactions is not influenced by considerations related to the sale of fund shares," the agency stated in a release.

The SEC first proposed an amendment in February of 2003, which was later adopted with little change in August.

Mellon Financial to Buy Wealth Management Group

Mellon Financial Corp. recently announced it will buy a Rhode Island investment firm, making it the private wealth management group's third acquisition this summer and seventh in four years as part of a national expansion.

Craig R. Sutherland, Mellon's private wealth group's national director, said it must continue to enter markets where it currently lacks a presence. The private wealth unit has $75 billion of assets under management and 60 offices throughout the U.S. Mellon's agreement to buy the privately held Providence Group Investment Advisory Co. of Providence, R.I., would give it its first Rhode Island office. The deal would add about $750 million of client assets.

E*Trade Cuts Expenses on Two Index Funds to 9 BPs

Following Fidelity Investments' lead, E*Trade recently announced it will reduce expenses in both its S&P 500 and International Index funds to nine basis points, lowering the fees to well below the industry average. The move, according to E*Trade, brings those funds to as much as 88% below industry averages. "Investors understand the importance of low expense ratios to fund performance, particularly when it comes to index funds," said E*Trade President Lou Klobuchar. "Reducing our expense ratios to the lowest in the industry, at nine basis points, reaffirms our commitment to deliver value to both current and prospective customers."

Internal ING Review Finds Improper Trades Isolated'

Improper trading at ING U.S. was a case of mostly isolated incidents and did not represent a widespread problem, the maligned mutual fund firm just announced. ING is currently under review by the Securities and Exchange Commission for "irregularities" in its trades. The company said its internal review will be released to all four million of its customers. The company also said that the trades had no huge impact on the company.