AS FUNDS UP ANTE, TIMER BODY NEARS POLICY TO REIN IN ITS OWN: MOVE COULD INVOLVE CENSURE BY PEERS

The association representing market-timing advisers is moving toward a self-policing policy that could call for punishing members who disrupt mutual funds by trading excessively.

The Society of Asset Allocators and Fund Timers Inc. is facing the unpleasant prospect of chastising its own as more fund companies restrict market timers and even ban them outright from their funds.

At the association’s conference in New Orleans earlier this month, a committee recommended setting up some sort of self-enforcement process. The group’s board will take up the issue later this year.

Taking a cue from the “Gang of 71” advisers who pressed their issues with the fund industry at Charles Schwab & Co.’s conference, the fund timer group wants to schedule a confab with fund representatives at the Schwab annual event in November. The session would allow the two sides to air their differences and perhaps unearth misconceptions about each other, SAAFTI officers say.

chastising the wayward

The self-policing initiative is in its formative stages, but possibly would involve some form of formal “censure” of wayward advisers.

“Right now, I’m more concerned (about fund relations) than I’ve been in a long time,” says the group’s mutual-fund relations point man, Tom Lydon, president of Global Trends Investments in Newport Beach, Calif., which supervises $25 million. “We have to discuss policing ourselves, and we’ve never had to do that before.”

The internal enforcement policy, however, is far from a done deal. Mr. Lydon’s call to the SAAFTI membership to debate the pros and cons of such an approach was met with uncomfortable silence at the recent conference. But he vows to raise it again when the organization next meets in the fall.

At its spring conference last year, the timer group adopted a “fair practices policy” that essentially asks members to notify funds before moving large amounts of cash and to use other funds within a family when reallocating.

Without an enforcement mechanism, however, the policy hasn’t had its intended effect, as more fund firms continue to take stronger measures to keep timers out.

“We now need to put some teeth into it, which would gain us respect as an organization,” says SAAFTI Director Robert Davis of Tampa, Fla.-based Bay Capital Securities.

Despite the hand-wringing within SAAFTI over fund relations, the news isn’t all bad for timers, argues Jerry Wagner, president of Flexible Plan Investments Ltd., a Bloomfield Hills, Mich., advisory managing $280 million. Both OppenheimerFunds and John Hancock Funds reversed timer crackdowns recently after pleadings from SAAFTI.

“Every year since 1974, we’ve worked with more funds than we did the year before,” he says.

But disgruntled fund families keep increasing, too. They include Strong Funds, Neuberger & Berman, and Montgomery Funds. A recent addition to the list is Denver-based Berger Funds, which had two SAAFTI members plop $18 million into the Berger Small Company Growth Fund in December only to yank all of it out a few weeks later without warning, says Ed Allison, who manages Berger’s advisory group. The fund had less than $800 in cash at the time to meet the redemptions.

“What you find is very few (SAAFTI members) in fact follow (the group’s) guidelines,” Mr. Allison says.

FACED DOWN BY JANUS

Another apparently displeased fund family is Denver-based Janus, which boasts some of the industry’s most-wanted funds.

In a February letter to Mr. Wagner’s firm, Janus said it was reviewing all its adviser accounts for excessive trading, having seen an increase in hot money.

The letter fingered Flexible Plan Investments as one of the firms trading too often, says Renee Toth, Flexible Plan Investments’ fund relations manager.

In fact, she says, her firm trades no more frequently than four times a year — within the guidelines set in Janus’ prospectus. The advisory firm has held its only Janus offering, the Twenty Fund, since early December.

“Usually, I don’t get anything in writing on these policies,” Ms. Toth says. “This was nice to get, really. The news isn’t great, but at least they are communicating.”

A Janus spokeswoman says the firm’s policy always has been to restrict trades to four times a year.