(MONEY Magazine) – So far this election season, financial services companies and their employees have doled out some $250 million in campaign contributions, according to the Center for Responsive Politics. That's more than any other industry. With so many pols feeding at the financial services trough, individual investors need as many friends in Washington, D.C. as they can muster. They'll lose one of their feistiest defenders next month with the departure of U.S. Sen. Peter G. Fitzgerald. A maverick Republican from Illinois, Fitzgerald was one of the earliest and harshest critics of Enron, and he was the only senator to vote against the post-Sept. 11 airline bailout. Former banker Fitzgerald argued that pouring $15 billion into a broken industry would prove a waste of taxpayer dollars. Today his prediction looks spot-on.

More recently, Fitzgerald has trained his sights on the high cost of mutual funds. He went so far as to dub the fund industry "the world's largest skimming operation." Fitzgerald pushed unsuccessfully for major fund reforms, including a ban on 12b-1 charges—fees that go to help a fund pay for its advertising and distribution costs—and a crackdown on "soft dollar" deals between fund managers and brokerages. His bill ran up against fierce opposition from the Investment Company Institute, the fund biz's powerful lobbying group. When asked why he chose not to run for re-election, Fitzgerald expressed frustration at how campaign cash is subverting the legislative system. "Clearly," he says, "I was never going to change that process." The lame duck shared a few parting quacks with MONEY in October.

Q. Before we talk mutual funds, I'd like to get your thoughts on the airlines. United and US Airways are in bankruptcy, and Delta (DAL) is on the brink. Do you feel at all vindicated?

A. The airline bailout was an unjustifiable and misguided interference in the free market. It really only delayed the inevitable with respect to some high-cost carriers. They just blew through the money they got from the federal government and then filed for bankruptcy. For politicians, the attraction was the campaign contribution from airlines, which have gargantuan lobbying forces on Capitol Hill. Frankly, it was sad to see many fellow fiscal conservatives abandon principle in order to assuage a powerful special interest.

Q. Okay, on to the fund business. You said recently that Congress should move to reduce fees charged by tax-advantaged college savings plans, or 529s. Is it that bad?

A. The states are in some cases more than doubling the underlying fees. According to Morningstar, the best plan in the country is the Utah plan. Utah has hired Vanguard. But the state of Utah imposes additional fees to get the cost up to 0.27% of assets per year. [A retail Vanguard index fund costs 0.18%.] As far as I can tell, there is no benefit from having the states interpose themselves as additional fee-charging middlemen. An investor should be able to go to a fund company and open a 529 just as he or she can go to one and open an IRA.

Q. What about the tax breaks some states give to in-state buyers of their 529s? Isn't that a benefit?

A. The states have erected protectionist barriers to lock their residents into their own plans. And they have to do that, in some cases, because their plans are a bad deal, and they want to prevent their residents from going to a better deal in, say, Utah. Congress shouldn't allow that. We should at least require them to offer the same tax breaks to everybody, let the market work and let the investors go to the best deals.

Q. The states defend their fees by saying that their plans take all comers, no matter how little money savers invest.

A. Some do, but not all. Look, consumers would just be better off if Congress got the states out of the college savings business and focused on lowering fees for funds in general. Mutual fund investment fees sound diminutive and trifling when they're expressed as a percentage of what's in one's account. But those fees compound over time, with an enormous impact on returns. One percentage point of fees over 40 years of investment in a mutual fund cuts your nest egg by 45%.

Q. But money managers are just charging what the market will bear. Is it really fair to call the fund industry "the world's largest skimming operation"?

A. I'm a great admirer of Vanguard founder John Bogle and all that Vanguard's done to create low-cost mutual funds. And I'm very encouraged that Fidelity has lowered the cost of their index funds down to 0.1%. But I think it's outrageous that you have some index funds out there charging close to 2% for doing investing an orangutan could do. That is skimming, okay?

Q. But would I be wrong to assume that you were engaging in a little rhetorical hyperbole here—perhaps to draw attention to much more complicated issues like "soft dollar" expenses?

A. You're very perceptive, though I do think that skimming is going on. The mutual fund industry has been allowed to charge their fees and state them as a percentage of the amount in that account. When you do that, you obscure what is being paid.

Q. How so?

A. Most people can't understand the fees they are being charged when they're expressed in percentages and basis points instead of real dollars.

Q. Let's talk about those soft dollars. Just what are they, and why do you want to ban them?

A. The mutual fund industry has basically gotten away with charging their fund shareholders for lots of their overhead. A mutual fund will cut a deal with a broker that will allow the brokerage to charge higher-than-market commissions on trades—soft-dollar commissions—in return for the brokerage firm buying, for example, computer terminals or research for the fund company. These costs are passed on to the fund company's customers without ever showing up in the expense ratio. It's wrong.

Q. Your fund reform bill ran into strong resistance from the Investment Company Institute. Will others in Congress take up the cause next year?

A. Passing anything that the ICI opposes is going to be very hard because the ICI is a very powerful special interest. For that reason, I think it will be very hard to get any kind of mutual fund reform bill through the House and Senate banking committees. But with respect to soft dollars, I do think the ICI is open to some reforms. Where they really pushed back on my bill was the disclosure of the fees in dollars-and-cents terms. They did not like that.

Q. Earlier you talked about the free market. Well, doesn't the fund consumer bear some responsibility here? If investors demanded low-cost funds, wouldn't there be more companies following Vanguard's lead?

A. It's not a free and open market. Many employers lock their employees into certain mutual funds for their 401(k) plans. Also, the market cannot operate properly when information about costs is obscured or stated only as a percentage of the assets. Or when fund managers are using shareholders' money from 12b-1 fees to advertise and to take in more assets, knowing full well that the best way to do that is to advertise the flavor-of-the-month specialty fund. They know they'll get a lot more deposits if they appeal to people's unsophisticated view of how you should go about investing.

To make fund costs easier to grasp, Fitzgerald has proposed that funds tell investors what expenses added up to in dollars every year. Here's what the annual bill might look like for three funds, based on figures they are already required to include in their prospectuses.

ONE YEAR'S EXPENSES BASED ON A $10,000 INVESTMENT

NOTES: Assumes a 5% return. Costs based on each fund's expense ratio when its most recent prospectus was issued. SOURCE: Fund prospectuses.