II 

111TH CONGRESS 

1ST SESSION S. 1964 

To require disclosure of financial relationships between brokers and dealers 

and mutual fund companies, and of certain commissions paid by mutual 

fund companies. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 28, 2009 

Mr. AKAKA introduced the following bill; which was read twice and referred 

to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To require disclosure of financial relationships between brokers and dealers and mutual fund companies, and of 

certain commissions paid by mutual fund companies. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Mutual Fund Trans5 parency Act of 2009’’. 


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1 SEC. 2. DISCLOSURE OF FINANCIAL RELATIONSHIPS BE2 TWEEN BROKERS AND DEALERS AND MU3 TUAL FUND COMPANIES. 

4 (a) IN GENERAL.—Section 15(b) of the Securities 

5 Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended by 

6 adding at the end the following: 

7 ‘‘(13) CONFIRMATION OF TRANSACTIONS FOR

8 MUTUAL FUNDS.— 

9 ‘‘(A) IN GENERAL.—Each broker and deal10 er shall disclose in writing to customers that 

11 purchase the shares of any open-end or closed12 end company registered under section 8 of the 

13 Investment Company Act of 1940 (15 U.S.C. 

14 80a–8) or any interest in a unit investment 

15 trust or municipal securities registered under 

16 this title used for education savings plans— 

17 ‘‘(i) the amount of any compensation 

18 received or to be received by the broker or 

19 dealer in connection with such transaction 

20 from any sources; and 

21 ‘‘(ii) such other information as the 

22 Commission determines appropriate. 

23 ‘‘(B) REVENUE SHARING.—The term ‘com24 pensation’ under subparagraph (A) includes any 

25 direct or indirect payment made by an invest26 ment adviser (or any affiliate of an investment 


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1 adviser) to a broker or dealer for the purpose 

2 of promoting the sales of securities of an entity 

3 described in subparagraph (A), and payments 

4 made by an underwriter of the fund to a broker 

5 or dealer. 

6 ‘‘(C) TIMING OF DISCLOSURE.—The disclo7 sure required under subparagraph (A) shall be 

8 provided or sent to a customer not later than 

9 the date of the completion of the transaction. 

10 ‘‘(D) LIMITATION.—The disclosures re11 quired under subparagraph (A) may not be 

12 made exclusively in— 

13 ‘‘(i) a registration statement or pro14 spectus of an entity described in subpara15 graph (A); or 

16 ‘‘(ii) any other filing of an entity de17 scribed in subparagraph (A) with the Com18 mission. 

19 ‘‘(E) COMMISSION AUTHORITY.— 

20 ‘‘(i) IN GENERAL.—The Commission 

21 shall issue such final rules or regulations 

22 as are necessary to carry out this para23 graph, not later than 1 year after the date 

24 of enactment of the Mutual Fund Trans25 parency Act of 2009. 


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1 ‘‘(ii) FORM OF DISCLOSURE.—Disclo2 sures under this paragraph shall be in 

3 such form as the Commission shall require 

4 by rule. 

5 ‘‘(F) DEFINITIONS.—In this paragraph— 

6 ‘‘(i) the terms ‘open-end company’ 

7 and ‘closed-end company’ have the same 

8 meanings as in section 5 of the Investment 

9 Company Act of 1940 (15 U.S.C. 80a–5); 

10 ‘‘(ii) the term ‘unit investment trust’ 

11 has the same meaning as in section 4 of 

12 the Investment Company Act of 1940 (15 

13 U.S.C. 80a–4); and 

14 ‘‘(iii) the term ‘education savings 

15 plan’ means a qualified tuition program 

16 described in section 529(b)(1)(A)(ii) of the 

17 Internal Revenue Code of 1986.’’. 

18 (b) DISCLOSURE OF BROKERAGE COMMISSIONS.— 

19 Section 30 of the Investment Company Act of 1940 (15 

20 U.S.C. 80a–29) is amended by adding at the end the fol21 lowing: 

22 ‘‘(k) DISCLOSURE OF BROKERAGE COMMISSIONS.— 

23 The Commission, by rule, shall require that brokerage 

24 commissions as an aggregate dollar amount and percent25 age of assets paid by an open-end or closed-end company 


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1 or a unit investment trust or issuer of municipal securities 

2 during the 5-year period preceding the date of the trans3 action be included in any disclosure of the amount of fees 

4 and expenses that may be payable by the holder of the 

5 securities of such company for purposes of— 

6 ‘‘(1) the registration statement of that com7 pany; and 

8 ‘‘(2) any other filing of that company with the 

9 Commission, including the calculation of expense ra10 tios.’’. 

11 SEC. 3. MUTUAL FUND GOVERNANCE. 

12 (a) INDEPENDENT FUND BOARDS.—Section 10(a) of 

13 the Investment Company Act of 1940 (15 U.S.C. 80a– 

14 10(a)) is amended— 

15 (1) by striking ‘‘shall have’’ and inserting the 

16 following: ‘‘shall— 

17 ‘‘(1) have’’; 

18 (2) by striking ‘‘60 per centum’’ and inserting 

19 ‘‘25 percent’’; 

20 (3) by striking the period at the end and insert21 ing a semicolon; and 

22 (4) by adding at the end the following: 

23 ‘‘(2) have as chairman of its board of directors 

24 an interested person of such registered company; or 


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1 ‘‘(3) permit any person (other than an inter2 ested person, as described in paragraph (1)) to serve 

3 as a member of its board of directors, unless that 

4 person— 

5 ‘‘(A) is approved or elected by the share6 holders of such registered investment company 

7 at least once every 5 years; and 

8 ‘‘(B) has been found, on an annual basis, 

9 by a majority of the directors who are not inter10 ested persons, after reasonable inquiry by such 

11 directors, not to have any material business or 

12 familial relationship with the registered com13 pany, a significant service provider to the com14 pany, or any entity controlling, controlled by, or 

15 under common control with such service pro16 vider, that could reasonably be interpreted as a 

17 conflict of interest or cast doubt on the inde18 pendence of the director.’’. 

19 (b) ACTION BY INDEPENDENT DIRECTORS.—Section 

20 10 of the Investment Company Act of 1940 (15 U.S.C. 

21 80a–10) is amended by adding at the end the following: 

22 ‘‘(i) ACTION BY BOARD OF DIRECTORS.—No action 

23 taken by the board of directors of a registered investment 

24 company may require the vote of a director who is an in25 terested person of such registered investment company. 


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1 ‘‘(j) INDEPENDENT COMMITTEE.— 

2 ‘‘(1) IN GENERAL.—The members of the board 

3 of directors of a registered investment company who 

4 are not interested persons of such registered invest5 ment company shall establish a committee comprised 

6 solely of such members, which committee shall be re7 sponsible for— 

8 ‘‘(A) selecting persons to be nominated for 

9 election to the board of directors; and 

10 ‘‘(B) adopting qualification standards for 

11 the nomination of directors. 

12 ‘‘(2) DISCLOSURE.—The standards developed 

13 under paragraph (1)(B) shall be disclosed in the reg14 istration statement of the registered investment com15 pany.’’. 

16 (c) DEFINITION OF INTERESTED PERSON.—Section 

17 2(a)(19) of the Investment Company Act of 1940 (15 

18 U.S.C. 80a–2(a)(19)) is amended— 

19 (1) in subparagraph (A)— 

20 (A) in clause (iv), by striking ‘‘two’’ and 

21 inserting ‘‘5’’; and 

22 (B) by striking clause (vii) and inserting 

23 the following: 

24 ‘‘(vii) any natural person who has 

25 served as an officer or director, or as an 


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1 employee within the preceding 10 fiscal 

2 years, of an investment adviser or principal 

3 underwriter to such registered investment 

4 company, or of any entity controlling, con5 trolled by, or under common control with 

6 such investment adviser or principal under7 writer; 

8 ‘‘(viii) any natural person who has 

9 served as an officer or director, or as an 

10 employee within the preceding 10 fiscal 

11 years, of any entity that has within the 

12 preceding 5 fiscal years acted as a signifi13 cant service provider to such registered in14 vestment company, or of any entity con15 trolling, controlled by, or under the com16 mon control with such service provider; 

17 ‘‘(ix) any natural person who is a 

18 member of a class of persons that the 

19 Commission, by rule or regulation, deter20 mines is unlikely to exercise an appropriate 

21 degree of independence as a result of— 

22 ‘‘(I) a material business or pro23 fessional relationship with the invest24 ment company or an affiliated person 

25 of such investment company; 


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1 ‘‘(II) a close familial relationship 

2 with any natural person who is an af3 filiated person of such investment 

4 company; or 

5 ‘‘(III) any other reason deter6 mined by the Commission:’’; and 

7 (2) in subparagraph (B)— 

8 (A) in clause (iv), by striking ‘‘two’’ and 

9 inserting ‘‘5’’; and 

10 (B) by striking clause (vii) and inserting 

11 the following: 

12 ‘‘(vii) any natural person who is a 

13 member of a class of persons that the 

14 Commission, by rule or regulation, deter15 mines is unlikely to exercise an appropriate 

16 degree of independence as a result of— 

17 ‘‘(I) a material business or pro18 fessional relationship with such invest19 ment adviser or principal underwriter 

20 or affiliated person of such investment 

21 adviser or principal underwriter; 

22 ‘‘(II) a close familial relationship 

23 with any natural person who is an af24 filiated person of such investment ad25 viser or principal underwriter; or 


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1 ‘‘(III) any other reason, as deter2 mined by the Commission.’’. 

3 (d) DEFINITION OF SIGNIFICANT SERVICE PRO4 VIDER.—Section 2(a) of the Investment Company Act of 

5 1940 (15 U.S.C. 80a–2(a)) is amended by adding at the 

6 end the following: 

7 ‘‘(54) SIGNIFICANT SERVICE PROVIDER.— 

8 ‘‘(A) IN GENERAL.—Not later than 270 

9 days after the date of enactment of the Mutual 

10 Fund Transparency Act of 2009, the Commis11 sion shall issue final rules defining the term 

12 ‘significant service provider’. 

13 ‘‘(B) REQUIREMENTS.—The definition de14 veloped under paragraph (1) shall include, at a 

15 minimum, the investment adviser and principal 

16 underwriter of a registered investment company 

17 for purposes of paragraph (19).’’. 

18 SEC. 4. FINANCIAL LITERACY AMONG MUTUAL FUND IN19 VESTORS STUDY. 

20 (a) IN GENERAL.—The Securities and Exchange 

21 Commission shall conduct a study to identify— 

22 (1) the existing level of financial literacy among 

23 investors that purchase shares of open-end compa24 nies, as that term is defined under section 5 of the 


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1 Investment Company Act of 1940, that are reg2 istered under section 8 of that Act; 

3 (2) the most useful and understandable relevant 

4 information that investors need to make sound fi5 nancial decisions prior to purchasing such shares; 

6 (3) methods to increase the transparency of ex7 penses and potential conflicts of interest in trans8 actions involving the shares of open-end companies; 

9 (4) the existing private and public efforts to 

10 educate investors; and 

11 (5) a strategy to increase the financial literacy 

12 of investors that results in a positive change in in13 vestor behavior. 

14 (b) REPORT.—Not later than 1 year after the date 

15 of enactment of this Act, the Securities and Exchange 

16 Commission shall submit a report on the study required 

17 under subsection (a) to— 

18 (1) the Committee on Banking, Housing, and 

19 Urban Affairs of the Senate; and 

20 (2) the Committee on Financial Services of the 

21 House of Representatives. 

22 SEC. 5. STUDY REGARDING MUTUAL FUND ADVERTISING. 

23 (a) IN GENERAL.—The Comptroller General of the 

24 United States shall conduct a study on mutual fund adver25 tising to identify— 


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1 (1) existing and proposed regulatory require2 ments for open-end investment company advertise3 ments; 

4 (2) current marketing practices for the sale of 

5 open-end investment company shares, including the 

6 use of unsustainable past performance data, funds 

7 that have merged, and incubator funds; 

8 (3) the impact of such advertising on con9 sumers; and 

10 (4) recommendations to improve investor pro11 tections in mutual fund advertising and additional 

12 information necessary to ensure that investors can 

13 make informed financial decisions when purchasing 

14 shares. 

15 (b) REPORT.—Not later than 1 year after the date 

16 of enactment of this Act, the Comptroller General of the 

17 United States shall submit a report on the results of the 

18 study conducted under subsection (a) to— 

19 (1) the Committee on Banking, Housing, and 

20 Urban Affairs of the United States Senate; and 

21 (2) the Committee on Financial Services of the 

22 House of Representatives. 

23 SEC. 6. POINT-OF-SALE DISCLOSURE. 

24 (a) IN GENERAL.—Section 15(b) of the Securities 

25 Exchange Act of 1934 (15 U.S.C. 78o(b)), as amended 


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1 by section 2 of this Act, is amended by adding at the end 

2 the following: 

3 ‘‘(14) BROKER AND DEALER DISCLOSURES IN

4 MUTUAL FUND TRANSACTIONS.— 

5 ‘‘(A) IN GENERAL.—Each broker and deal6 er shall disclose in writing to each person that 

7 purchases the shares of an open-end or closed8 end company registered under section 8 of the 

9 Investment Company Act of 1940 (15 U.S.C. 

10 80a–8) or any interest in a unit investment 

11 trust or municipal securities registered under 

12 this title— 

13 ‘‘(i) the source and amount, in dollars 

14 and as a percentage of assets, of any com15 pensation received or to be received by the 

16 broker or dealer in connection with such 

17 transaction from any sources; 

18 ‘‘(ii) the amount, in dollars and as a 

19 percentage of assets, of compensation re20 ceived in connection with transactions in 

21 shares of other investment company shares 

22 offered by the broker or dealer, if materi23 ally different from the amount under 

24 clause (i); 


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1 ‘‘(iii) comparative information that 

2 shows the average amount received by bro3 kers and dealers in connection with com4 parable transactions, as determined by the 

5 Commission; and 

6 ‘‘(iv) such other information as the 

7 Commission determines appropriate. 

8 ‘‘(B) REVENUE SHARING.—The term ‘com9 pensation’ under subparagraph (A) shall in10 clude any direct or indirect payment made by 

11 an investment adviser (or any affiliate of an in12 vestment adviser) to a broker or dealer for the 

13 purpose of promoting the sales of securities of 

14 a registered investment company. 

15 ‘‘(C) TIMING OF DISCLOSURE.—The disclo16 sures required under subparagraph (A) shall be 

17 made to permit the person purchasing the 

18 shares to evaluate such disclosures before decid19 ing to engage in the transaction. 

20 ‘‘(D) LIMITATION.—The disclosures re21 quired under subparagraph (A) may not be 

22 made exclusively in— 

23 ‘‘(i) a registration statement or pro24 spectus of a registered investment com25 pany; or 


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1 ‘‘(ii) any other filing of a registered 

2 investment company with the Commission. 

3 ‘‘(E) COMMISSION AUTHORITY.—The Com4 mission shall promulgate such final rules as are 

5 necessary to carry out this paragraph not later 

6 than 1 year after the date of enactment of the 

7 Mutual Fund Transparency Act of 2009.’’. 

8 (b) FIDUCIARY DUTIES.—Section 15 of the Securi9 ties Exchange Act of 1934 (15 U.S.C. 78o) is amended 

10 by adding at the end the following new subsection: 

11 ‘‘(k) STANDARD OF CARE.—Notwithstanding any 

12 other provision of this title or the Investment Advisers Act 

13 of 1940, the Commission shall promulgate rules, not later 

14 than 1 year after the date of enactment of the Mutual 

15 Fund Transparency Act of 2009 to provide that the stand16 ard of care for all brokers and dealers in providing invest17 ment advice about securities to retail customers or clients 

18 (and such other customers or clients as the Commission 

19 may by rule provide) shall be the fiduciary duty estab20 lished under the Investment Advisers Act of 1940, includ21 ing, without limitation, the duty to act solely in the best 

22 interest of the customer or client, without regard to the 

23 financial or other interest of the broker or dealer providing 

24 the advice.’’. 

Æ 


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