SEC Takes Steps to Improve Mutual Fund Disclosure for Investors

Reed Kathrein — Tue, 02 Dec 2008 00:35:00 GMT

My friend William Lutz, who spearheaded the SEC's Plain English Rules, and now is overseeing a new 21^st Century Disclosure Initiative at the SEC and has alerted me to the Securities and Exchange Commission's (SEC) long overdue step towards helping investors better prepare for prudent decisions about their investments. Specifically, the commission voted for mutual funds to do a better job of disclosing key information about their funds in a way that investors can understand.

This is very good news for investors, and one that should help millions of Americans, especially now as they try to re-establish their investment strategy after the recent re-pricing of the stock market.

In my years of representing individual and institutional investors, I've seen too many cases in which an investor made a decision to buy - or sell - funds thinking they had a clear picture of the risks associated with a fund, when in fact they didn't. I have also spent numerable hours just trying to find information buried in the various filings that make up the prospectus.

It is not to say that the fund managers intentionally obfuscate important information about the funds (although at times one wonders), but it is clear that the wonks who are tasked with writing the fund prospectuses aren't rewarded for their ability to write with clarity or concision.

The new rules say that every mutual fund prospectus must list the fund's investment objectives and strategies, risks, and costs at the front in easily accessible language, along with a snapshot of the fund managers' backgrounds, information about purchase and sale procedures as well as tax implications.

But just as important, the new requirements say that the fund managers must provide potential purchasers this information in standardized format - think of it as the nutrition label on a can of soup; you know where the calories are listed, so it becomes easier to compare one against another.

The new rules mandate that the funds also publish this information - in this structured, standardized format - online. Moreover, they must also allow investors to drill down on information important to them, download the information, and keep an electronic copy.

Will these mandated changes bring an end to investors making bad choices? Of course not, but any time investors have access to more accurate, more accessible information, the better they will be.

If you want to read more, visit the SEC's news release, aptly written with concision and clarity.

Meaningful Disclosure : mutual funds

SEC Takes Steps to Improve Mutual Fund Disclosure for Investors