Mutual funds are a form of investment where the shareholders combine money in order to invest in several stocks, money market investments, and bonds as opposed to just purchasing stock in one company.
Mutual funds are regulated through investment laws.
Mutual funds law is the area of law that governs the development, sale, and operation of mutual funds.
It is a subset of investment and finance law.
Lawmakers develop and enforce mutual fund laws with the goal of protecting investors and providing clear, transparent information about mutual fund investments.
Mutual funds law is largely regulatory with enforcement actions and litigation when appropriate.
What is Mutual Funds Law?
Mutual funds law is the collection of laws, regulations, and requirements that relate to mutual funds.
State and federal laws control how mutual funds organize and operate.
Federal laws control organization, sales, investment diversity, operating disclosures, and access to funds.
Mutual funds law also includes state laws that may vary.
Mutual funds law is a combination of state and local laws that regulate mutual fund investing activity.
What do Mutual Fund Lawyers Do?
What mutual fund lawyers do is advise their clients about mutual fund laws and how to comply with them.
Mutual fund law is largely regulatory; lawyers advise their clients about how to proactively comply with the laws.
Lawyers who work for government entities or for private compliance organizations may participate in enforcement actions and conflict resolution like arbitration.
Mutual funds lawyers also do things related to litigation and enforcement on behalf of their respective clients or government entities.
Finally, they may lobby for amendments and additions to mutual fund law.
Are Mutual Funds Regulated?
Yes, mutual funds are regulated.
The U.S. Securities and Exchange Commission is the primary agency regulating mutual funds in the United States.
Federal laws including the Investment Company Act of 1940 and the Investment Advisors Act of 1940 create regulations that impact mutual funds.
There are also state regulations.
Mutual funds are regulated by laws governing all aspects of the creation, marketing, operation, and sales of mutual funds and their shares.
What is a Mutual Fund and How Does it Work?
A mutual fund is a type of investment that is the total of smaller investments combined into one.
The mutual fund pools a large amount of money and splits it into a variety of different investments.
The result is lower risk for investors compared to investment in a single stock.
Funds work by investors buying stocks which are then controlled by account managers.
A mutual fund is a diversified investment, and how it works is by spreading funds into a diverse range of investments with pass-through taxation to the individual investor.
Mutual Funds Laws
Mutual funds laws come mostly from federal sources.
There are state mutual funds laws, too.
Federal mutual funds laws include:
Investment Company Act of 1940
The Investment Company Act of 1940 is the first and major piece of legislation regulating mutual fund activity in the United States.
Under the Act, mutual fund companies must register as investment companies.
They must offer disclosures of their risks, investment goals, fees, and operating expenses.
Companies must produce a prospectus, periodic reports, privacy notices, and tax information.
Securities Act of 1933
The Securities Act of 1933 is also called the Truth in Securities Act.
Because of the Act, Mutual fund investors must provide specific and transparent information about their investments.
Securities and Exchange Act of 1934
The Securities and Exchange Act of 1934 created the Securities and Exchange Commission (SEC).
The Act authorizes the SEC to regulate mutual funds.
Mutual Fund Transparency Act of 2009
The Mutual Fund Transparency Act of 2009 adds to the existing body of mutual fund law in the United States.
The Act requires disclosure of relationships between dealers and brokers.
Interested parties must be transparent about commissions paid for sales and services.
Employee Retirement Income Security Act of 1974
ERISA for short, the Employee Retirement Income Security Act of 1974 creates standards for private pensions that impact mutual funds investments.
Mutual fund government and private enforcement agencies include:
Securities and Exchange Commission
The Securities and Exchange Commission is the primary federal agency that regulates mutual funds in the United States.
The federal agency enforces securities laws from its headquarters in Washington DC.
Actions include administrative actions and litigation in an effort to maintain fair operation of mutual fund investment in the United States.
The U.S. Securities and Exchange Commission reviews filings, issues comments, and approves public sales of mutual funds.
Financial Industry Regulatory Authority
The Financial Industry Regulatory Authority (FINRA) is an independent agency that monitors investment firms.
Formed in 2007, FINRA is an independent agency.
It provides training, enforcement, and arbitration services for participant investors and managers.
Who Practices Mutual Fund Law?
Those who practice mutual fund law are banking, investment, and finance attorneys.
Mutual funds lawyers are largely specialists.
They focus their entire careers on banking and finance legal matters.
In addition, they work for large law firms or as in-house counsel for financial institutions.
Mutual fund lawyers rarely work in solo practice.
Lawyers who focus on the area of mutual fund law are not litigators primarily.
Instead, they are regulatory attorneys.
Attorneys in the field do not focus on litigation or adversarial procedures.
Their primary focus is advising and compliance.
Those who practice mutual fund law are attorneys who prefer compliance matters to litigation and who excel at banking and finance legal matters.
Why Practice Mutual Fund Law?
Mutual fund law is an area of law that provides stability, focus on singular clients, and a potentially stable, attractive income.
Attorneys might work for one financial institution for their entire career.
Mutual fund law involves long-term clients and steady legal work.
Compliance work is ongoing, and fluctuations are minor.
Attorneys who appreciate stability and prefer not to litigate in daily practice may enjoy a career in mutual fund law.
Diversified Investments for Specialized Lawyers
Although mutual funds are diversified investments, lawyers in the area of law are specialists.
Attorneys help their clients understand and comply with laws that come from federal and state sources.
They ensure compliance with regulations and assist their clients with legal compliance in a way that’s calculated to help their clients succeed.
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