As more and more Americans become investors, paternalistic regulators are demanding greater disclosure by mutual funds to protect consumers from excessive brokerage commissions or fees. But the Securities and Exchange Commission (SEC) and Congress should pause before imposing still more transparency rules on this already heavily regulated sector.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
After all, other than zealous ideologues who view all markets with suspicion, few are really interested. Investors care about fund performance, not about how the fund managers achieve that result. Good performance may result from the superior selection of stocks, better advice from brokers or transaction efficiencies. Investors focus on the net result—the "bottom line"—and leave the details of how this is achieved to the fund managers. And performance information is readily available from investor newsletters, newspaper columns, magazine articles, and television programs.
Of course, some financial information may be valuable. But separating that informational wheat from chaff is not easy. Existing "disclosure" requirements already clutter our mailboxes with unwanted and unread mutual-fund mailings. Still more data may mean even less information—a fact rarely understood by regulators. Mandates weaken the process by which truly valuable information is obtained.
Finally, disclosure mandates make a dynamic investment world more rigid. A commission structure well suited to one market condition might be poorly suited for another. Yet, to change that structure in the regulated world would require a new disclosure, which would have to gain prior approval. To hobble a rapidly changing investment system to the leaden pace of the regulatory bureaucracy is foolish.
And all of this is unnecessary. Markets already provide the information needed to advance consumer welfare. Markets bundle the various transaction costs of bringing buyer and seller into agreement and summarize all relevant information—brokerage fees, commission structures and other costs—into the sufficient statistic of "price." Governments don't tell newspapers what content to provide their readers. Regulators should show similar restraint in addressing the investment world.