SEC adopts rules aimed at boosting transparency of fees and performance in mutual funds, ETFs

Personal Finance


Federal regulators on Wednesday adopted rule changes intended to make it easier for consumers to understand what they’re invested in and how much it’s costing them.

Under amendments approved by the Securities and Exchange Commission, investment company ads will need to promote “transparent and balanced presentations” of fees and expenses.

Additionally, shareholder reports from mutual funds and exchange traded funds will need to be “concise and visually engaging,” according to the SEC.

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“A retail investor looking to understand the performance, fees and other operations of a mutual fund or [ETF] may need to sift through extensive financial information,” said SEC Chair Gary Gensler.

“Today’s final rules will require fund companies to share a concise set of materials that get to the heart of the matter,” Gensler said.

Key fund information will need to be highlighted

For the shareholder reports, key information — such as fund expenses, performance and portfolio holdings — will need to be highlighted. The use of graphic and text features also will be encouraged, as will making online versions of the reports more user-friendly and interactive.

Today, these reports can be 100 pages or more long, according to the SEC.

Fees in ads will need to be transparent

As for the advertising amendments: Presentations of fees and expenses in ads and sales literature will need to be consistent with relevant information in the prospectus’ fee table, and be “reasonably” current. They also cannot be materially misleading.

Fees paid by fund investors eat away at their returns. For example, $100,000 invested over 20 years earning 4% yearly would end up being worth $10,000 less with an annual 0.5% fee, compared with 0.25%, according to the SEC’s Office of Investor Education and Advocacy.

It may be a while before investors notice changes from the adopted changes.

While the amendments take effect 60 days after publication in the Federal Register, the SEC said it is providing an 18-month transition period after that effective date to give investment companies time to adjust their shareholder reports and adhere to the advertising fee rules.

The amendments that deal with misleading representations of fees and expenses will apply on the effective date.

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