(April 25) – “The mutual-fund industry is renewing its call for securities regulators to treat online investment vehicles that let investors create personalized stock baskets for a monthly fee as mutual funds,” writes Stacy Forster in today’s Wall Street Journal.

“These emerging personal investment products, known as folios, are becoming popular among individual and professional investors alike and could siphon business away from traditional mutual funds.”

“But the Investment Company Institute, the chief lobbyist for the mutual- fund industry, warned in a recent letter to the Securities and Exchange Commission that individuals could be vulnerable to abuses if folios aren’t regulated as funds. It was the ICI’s second such appeal in less than a year.”

“Folio companies say such regulation is needless. Because they have to register as brokers or investment managers, the companies argue their products already are subject to SEC scrutiny. Moreover, unlike mutual funds, folios aren’t fully controlled by a professional manager, they say.”

“Folios operate in a gray area between individual brokerage accounts and mutual funds. Fund and folio investors both have access to professional investment advice. But, unlike fund shareholders, folio investors own the individual stocks in their chosen baskets and use their own judgment in buying and selling to take advantage of their chosen investment strategies.”

“The low cost of maintaining these baskets, and the ability to effectively manage the tax-impact on a portfolio, also give owners more flexibility in handling their accounts. As a result, a growing number of investors are finding folios to be an intriguing alternative to funds.”

“At a time when new investment vehicles are being introduced, it’s important to extend investor protections, the ICI said. Although the ICI has no quarrels with existing portfolio programs, it said it is trying to prepare the industry for the future.”

” ‘We believe that investors are entitled to the same protections as mutual funds, and because the creation of portfolios so resemble mutual funds in type and content that they ought to be regulated,’ said Elizabeth Powell, a spokeswoman for the ICI.”