The Securities and Exchange Commission last week took a big step toward reforming the mutual fund industry, adopting several rules that must get a public airing before they become regulations. The most far-reaching of the reforms would prohibit the back scratching that goes on between fund companies and the brokerage firms who sell their funds.

Here's how it works now: In exchange for pushing their funds, fund companies ask brokers to handle the trading of the securities in the funds. Each time a fund manger tweaks the portfolio by buying or selling something, the broker who promoted the funds collects a commission for executing the trade.

The arrangement poses any number of potential conflicts of interest. The funds that brokers promote may not be appropriate for investors or may not have as good of a track record as other funds available through the broker. Or the broker's commission rates may be higher than those of another broker the fund could use, forcing fund investors to pay more than they have to for the trades. The more trades a fund makes, the more brokerage commissions take out of investors' pockets.

The SEC wants to require funds to adopt policies designed to prevent the efforts a broker makes to put new investors into a fund from influencing decisions on which broker gets the fund's securities trading business.

The Investment Company Institute, a trade group for the $7 trillion industry, supports the measure. President Matthew P. Fink calls it "a reform milestone that will benefit fund investors and strengthen the operating integrity of mutual funds."

Other measures adopted by the agency will require funds to make fuller disclosure on fees and expenses, and to disclose their holdings on a quarterly basis instead of semiannually.

Fund companies, investors and others will have 60 days to comment on the proposals before they take effect later this year.

The SEC also is seeking comments on what to do about so-called 12b-1 fees that funds impose to defray the costs of distributing their funds. The fee, which is capped at 1 percent, was conceived as a way to attract more investors to a fund. That was supposed to ultimately lower fund expenses by spreading them over a bigger group of investors.

However, fund fees have been creeping up and studies show many funds that have stopped taking money from new investors continue to charge 12b-1 fees. Some funds use them as a substitute for sales charges investors in load funds pay to purchase shares.

The SEC will consider changing the rules governing 12b-1 fees based on the comments it receives.

Putting aside the political rhetoric swirling around President Bush and his so-far unsubstantiated claims regarding Iraq's weapons of mass destruction, let's bandy about some financial rhetoric about the weapons of mass savings included in his $2.4 trillion budget proposal.

Because Bush's scheme includes a record deficit of $521 billion, skeptics are forgiven in advance for daring to ask how an administration that wants to spend considerably more than it takes in can evangelize on the issue of saving.

Bush has fine-tuned proposals for retirement savings accounts (RSA) and other tax-free savings ideas he submitted last year to no avail. RSAs and lifetime savings accounts (LSAs) would permit individuals of all ages and income levels to make nondeductible contributions of up to $5,000 annually into accounts, in which earnings would grow tax-free. In the case of LSAs, persons could contribute to accounts of their children, grandchildren or other individuals.

Other proposals would simplify the rules for 401(k) and other employer-sponsored retirement savings plans and make it easier for small employers to offer them.

"The proposals make saving simple for everyone and for every purpose," says assistant Treasury secretary Pam Olson. "They stress the importance of getting off the spending couch and into the savings gym."

But there's plenty of evidence that, like their feckless leaders, Americans would prefer remaining on the couch and having another doughnut.

Fewer than half of U.S. adults are saving anything monthly for their retirement, according to a recent study by Opinion Research Corp. Disregarding the 53 percent who aren't salting anything away, 10 percent save less than $50 monthly, 28 percent save less than $300 and 12 percent save $500 or more each month.

Even in households with annual incomes of $75,000 and up, only 66 percent put something in their retirement savings accounts each month -- this in spite of the fact that 60 percent of those surveyed are either not at all confident or not too confident Social Security will be around when they retire.

Americans should by all means be encouraged to save as much as possible, even when it's obvious they aren't taking advantage of existing programs. But the government shouldn't be delusional about the likelihood of inducing appropriate behavior.

Nor should it expect taxpayers to get religion when their leaders aren't up to the task themselves.