Obama's Views on Credit Card Disclosure Precursor to Fund Dislosure Reform?

In a meeting with credit card company executives in the White House on May 9, 2009, President Barack Obama made a noteworthy comment on the need for more disclosure in the hard-to-read and comprehend credit card disclosure statements and other documents.

The New York Times article said the President "called on the companies to produce statements that are clearly written and do not have any confusing terms and conditions. He also proposed that every company issue a “plain-vanilla, easy-to-understand, simplest-terms possible credit card” to make it easier for the average consumer."

The mutual fund industry should take note: If the President is using his persuasive powers on credit card executives, he and his new SEC Chairman Mary Schapiro would be able to bring some long overdue reform to the mutual fund industry's opaque disclosure practices. Among other things, these intentionally opaque practices mask the true impact of 12b-1 and other under-the-table revenue sharing agreements and shelf-space deals which directly cut into shareholder's fund returns.

Under the current disclosure regimen developed almost unilaterally by the mutual fund industry, anything which can be buried in a prospectus constitutes adequate disclosure.

So if your fund company has a revenue sharing agreement which is based on shareholders keeping their money in a fund, so it generates a commission for their financial rep, that esoteric deal has been "disclosed," according to the prevailing interpretation. But the President seems to have a different definition in mind.

Perhaps he is relying on the Webster's dictionary definition of disclosure which states that disclosure is:

"to expose to view: hatch: to make known or public " The synonym of disclosure is to "reveal."

Any mutual fund shareholder who has ever bothered to read a prospectus knows it is not a revealing document. It was not designed to be.

And while it is true that fees and revenue sharing agreements are printed on the prospectus newsprint, it is not apparent how these fees and other revenue agreements specifically are connected to your own fund account and what they mean in dollars and sense to detract from your total return.

Indeed, there are instances of significant revenue sharing agreement fees and under-the-table commissions which financial professionals never actually disclosed to their clients. Of course, I am using he Webster's definition of the term.

So this may be good news for shareholders. If the White House and then the SEC has the backbone, disclosure (using the Webster's dictionary definition) could be a long-overdue first step in mutual fund reform.

If that happens, shareholders will become very surprised about what they find they have been paying for,