Our Wish List for Fund Disclosure
How to improve turnover, expense ratios, and more.
The Securities and Exchange Commission recently voted to require mutual funds to provide a streamlined prospectus that would give investors the skinny on a fund and facilitate quick comparisons--all in plain English.
Better disclosure has clearly been a priority for the commission under Chairman Christopher Cox's leadership, and it's a laudable one. Too much fund literature is boilerplate text that makes investors' eyes glaze over. For example, fund companies throw everything but the kitchen sink into their prospectuses in an effort to stave off legal action in case they inadvertently do something they didn't say they would. And they write these passages in baffling, complex lawyer-speak. The end result of all that legalese, however, is that investors can read a prospectus but still not know what a fund does or how the manager intends to invest. Now that's a problem.
While the SEC is considering how to improve fund disclosure, we'd suggest they also consider adding or improving upon the following issues. (Note: Not all of these disclosures would fit within the streamlined prospectus; rather, some would be improvements upon already-required fund disclosures.) Fund companies needn't wait around for the SEC to act, either. Although a handful of these ideas, such as changing the turnover rate calculation, would hinge upon the SEC providing specific guidelines, these are generally shareholder-friendly disclosures that wouldn't be difficult for fund companies to adopt even without prompting from regulators.