Three U.S. senators on Monday unveiled the Mutual Fund Reform Act of 2004 (MFRA), which would ban three questionable, but legal, practices that bill sponsors say hurt investors and create conflicts of interest.

The bill, sponsored by Sens. Peter Fitzgerald, R-Ill., Carl Levin, D-Mich., and Susan Collins, R-Maine, is considered the toughest to date on the $7.4 trillion mutual fund industry, United Press International reported.

The bill says: "Three practices — soft dollar arrangements, revenue sharing, and directed brokerage — ought not clutter any mutual fund prospectus. And neither funds nor fund advisers should be spending time and money crafting elaborate disclosures and justifications of ultimately indefensible practices. By simply prohibiting these practices, MFRA vastly simplifies the disclosure regime, and benefits all stakeholders."

The MFRA is one of four bills that have been introduced in the Senate in the past few months. The House passed its own mutual fund bill in November.

The bill also calls for a method of identifying anonymous investors who use intermediaries to conduct transactions in omnibus accounts. The bill says that funds need to be able to trace individual investors who violate fund trading rules.

Market timing and late trading practices have also been under fire in the mutual fund industry scandal, and the MFRA seeks a no-excuses 4 p.m. trading deadline. More than 20 mutual fund companies are under investigation for allegedly allowing improper trading.

The bill also targets what is known as the 12b-1 law, which allows brokers to charge investors annually for advertising and marketing costs. Over time these "distribution fees," have morphed into "disguised loads," the bill states.

"What happens when fund advisers use their own profits — instead of tapping directly into investors' money — for distribution expenses? Distribution expenses become very reasonable," the bill says.

Other proposed changes include: requiring funds to disclose all costs in an understandable way, making it easier to replace fund directors, protecting whistleblowers, mandating that the SEC approve any new costs the industry wants to impose, and starting several studies on other preventative measures.

On Monday, the day the bill was introduced, Franklin Resources, the biggest publicly traded U.S. mutual fund manager, said the SEC plans to pursue charges against the company and two executives over trading practices.