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This page was last updated on January 8, 2001. Articles by Fund Democracy: Archives Letter to Charles Jaffe (Dec. 28, 2000) (sent to the Boston Globe, Orlando Sentinel, San Diego Union Tribune, Seattle Times, and Times-Picayune). On December 24, Charles Jaffe, a syndicated Boston Globe columnist, published a critique of the SEC's proposal to outlaw misleading fund names. In this letter to the editor, Fund Democracy responds to Mr. Jaffe's weak analysis and factual errors. Dear Sir/Madam: Your readers deserve better than Mr. Jaffe’s ill-informed critique -- Making Mutual Funds Live Up To Their Names -- of the SEC’s proposal to prohibit mutual funds from using misleading names. The rule would simply require what honest dealing and common sense should demand: that a mutual fund with a name that suggests that it will invest in a particular type of security actually invest at least 80% of its assets in that type of security. But Mr. Jaffe, piling distortion upon error, seems to believe otherwise. Mr. Jaffe’s analysis is as hard to fathom as the names of many mutual funds. For example, he argues that the rule will impose investment restrictions on mutual funds. In fact, the rule only affects a fund’s ability to use a particular name. Nothing in the rule restricts a fund’s investment freedom. Mr. Jaffe complains that the rule will force small-cap funds to sell stocks once they become too large. Actually, the rule states that it can only be violated when a fund makes a purchase. If a small-cap investment becomes mid-cap or large-cap, the fund would not be required to sell it. Indeed, SEC’s proposal provides that the rule won’t even apply to difficult to define terms such as “small-cap.” Mr. Jaffe patronizingly dismisses the rule as the invention of a group of “well-meaning investment groups.” The rule actually originated at the SEC, which in 1996 asked Congress for statutory authority to address the growing problem of misleading fund names. Congress obliged, and the SEC proposed the misleading names rule in February 1997. The SEC’s rule has the express support of the Investment Company Institute, the principal trade organization for the fund industry; and “well-meaning” groups such as the Financial Planning Association, which represents 30,000 certified financial planners; ten consumer groups, including Consumer Union and the Consumer Federation of America; the National Association of Investors Corporation; the AFL-CIO; and the mutual fund shareholder advocacy group founded by this writer, Fund Democracy. So what Mr. Jaffe derides as “nonsense” makes sense to everyone else: the fund industry; consumer groups, investor groups, and unions; Congress and the SEC; and thousands of financial professionals whose livelihood depends on providing wise counsel to clients about mutual fund investments. Sincerely, Mercer Bullard
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