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Rethinking the Regulation of Securities Intermediaries

82 Pages Posted: 24 Mar 2010 Last revised: 28 Jul 2010

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics

Date Written: July 27, 2010


This Article argues that existing regulation of mutual funds has serious shortcomings. In particular, the Investment Company Act, which is based primarily on principles of corporate governance and fiduciary duties, fails to support and, in some cases impedes, market forces. Existing evidence suggests that retail investing behavior and the dominance of sales agents with competing financial incentives further weakens market discipline.

As a solution, the Article proposes that funds should be treated primarily as financial products rather than corporations and, correspondingly, investors should be treated primarily as consumers rather than corporate shareholders. To implement this approach, the Article proposes the creation of a new federal agency that would develop standardized financial products coupled with corresponding disclosure principles. Sellers of retail products would be required either to conform their products to these standards or to explain material differences. The goal is to enhance market discipline while making retail funds less complicated and more understandable for individual investors.

Keywords: Mutual funds, retail funds, Investment Company Act of 1940, financial services regulation, market interference, erosion of market discipline, retail investment behavior, sales agent incentives, consumer protection, standards, standardized financial products, material differences, disclosure

JEL Classification: G23, G28, K22, K23

Suggested Citation

Fisch, Jill E., Rethinking the Regulation of Securities Intermediaries (July 27, 2010). University of Pennsylvania Law Review, Vol. 158, p. 1961, 2010; U of Penn, Inst for Law & Econ Research Paper No. 10-04. Available at SSRN:

Jill E. Fisch (Contact Author)

University of Pennsylvania Law School - Institute for Law and Economics ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

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